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SPEAKERS CONTENTS INSERTS
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1996
H.R. 1856, NATURAL DISASTER PROTECTION PARTNERSHIP ACT OF 1995
PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
(104–36)
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
WATER RESOURCES AND ENVIRONMENT
OF THE
COMMITTEE ON
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TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
OCTOBER 18 AND DECEMBER 5, 1995
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BUD SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HERBERT H. BATEMAN, Virginia
BILL EMERSON, Missouri
HOWARD COBLE, North Carolina
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JOHN J. DUNCAN, Jr., Tennessee
SUSAN MOLINARI, New York
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
JACK QUINN, New York
TILLIE K. FOWLER, Florida
VERNON J. EHLERS, Michigan
SPENCER T. BACHUS, Alabama
JERRY WELLER, Illinois
ZACH WAMP, Tennessee
TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
ANDREA SEASTRAND, California
RANDY TATE, Washington
SUE KELLY, New York
RAY LaHOOD, Illinois
BILL MARTINI, New Jersey
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JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
PETE GEREN, Texas
GLENN POSHARD, Illinois
BUD CRAMER, Alabama
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
PAT DANNER, Missouri
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
BOB FILNER, California
EDDIE BERNICE JOHNSON, Texas
BILL K. BREWSTER, Oklahoma
KAREN McCARTHY, Missouri
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FRANK MASCARA, Pennsylvania
THOMAS C. SAWYER, Ohio
GENE TAYLOR, Mississippi
JUANITA MILLENDER-McDONALD, California
ELIJAH E. CUMMINGS, Maryland
SUBCOMMITTEE ON WATER RESOURCES AND ENVIRONMENT
SHERWOOD L. BOEHLERT, New York, Chairman
ZACH WAMP, Tennessee, Vice-Chairman
DON YOUNG, Alaska
THOMAS E. PETRI, Wisconsin
HERBERT H. BATEMAN, Virginia
BILL EMERSON, Missouri
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
STEPHEN HORN, California
BOB FRANKS, New Jersey
JACK QUINN, New York
TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
BILL MARTINI, New Jersey
BUD SHUSTER, Pennsylvania
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(ex officio)
ROBERT A. BORSKI, Pennsylvania
ROBERT MENENDEZ, New Jersey
ROBERT E. WISE, Jr., West Virginia
JERRY F. COSTELLO, Illinois
GLENN POSHARD, Illinois
ELEANOR HOLMES NORTON, District of Columbia
JAMES A. BARCIA, Michigan
BOB FILNER, California
BILL K. BREWSTER, Oklahoma
KAREN McCARTHY, Missouri
GENE TAYLOR, Mississippi
ELIJAH E. CUMMINGS, Maryland
JAMES L. OBERSTAR, Minnesota
(ex officio)
(ii)
CONTENTS
TESTIMONY
OCTOBER 18, 1995
Baker, Hon. Bill, a Representative in Congress from California
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Clark, Jordan, President, United Homeowners Association
Emerson, Hon. Bill, a Representative in Congress from Missouri
Ewing, Hon. Thomas W., a Representative in Congress from Illinois
Fazio, Hon. Vic, a Representative in Congress from California
Frazer, Hon. Victor O., U.S. Delegate from the U.S. Virgin Islands
Hoffman, Scott, Director of Operations, Americans for Tax Reform
Horn, Hon. Steve, a Representative in Congress from California
Hunter, J. Robert, Director of Insurance, Consumer Federation of America
Hutchinson, Hon. Tim, a Representative in Congress from Arkansas
Keating, David L., Executive Vice President, National Taxpayers Union
Klagholz, James R., Secretary-Treasurer, Clayton N. Sterling Associates, Inc., Seaside Park, NJ, and Chairman, Government Affairs Committee, Independent Insurance Agents of America
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McCollum, Hon. Bill, a Representative in Congress from Florida
Murphy, Susanne, Deputy Insurance Commissioner, State of Florida
Paulison, R.D., First Vice President, International Association of Fire Chiefs, and Director, Metro-Dade Fire Rescue Department
Pomeroy, Hon. Earl, a Representative in Congress from North Dakota
Quakenbush, Chuck, Insurance Commissioner, State of California
Snyder, Rick, President-Elect, California Association of Realtors
Weber, Jack, Executive Director, Natural Disaster Coalition
Weldon, Hon. Curt, a Representative in Congress from Pennsylvania
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Baker, Hon. Bill, of California
Emerson, Hon. Bill, of Missouri
Ewing, Hon. Thomas W., of Illinois
Fazio, Hon. Vic, of California
Frazer, Hon. Victor O., of the U.S. Virgin Islands
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Horn, Hon. Steve, of California
Hoyer, Hon. Steny H., of Maryland
Hutchinson, Hon. Tim, of Arkansas
McCollum, Hon. Bill, of Florida
Oberstar, Hon. James L., of Minnesota
Pomeroy, Hon. Earl, of North Dakota
Poshard, Hon. Glenn, of Illinois
Wamp, Hon. Zach, of Tennessee
Weldon, Hon. Curt, of Pennsylvania
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Clark, Jordan
Hunter, J. Robert
Keating, David L
Klagholz, James R
Murphy, Susanne
Norquist, Grover (Scott Hoffman)
Paulison, R.D
Quackenbush, Chuck
Snyder, Rick
Weber, Jack
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SUBMISSIONS FOR THE RECORD
Borski, Hon. Robert A., Representative in Congress from Pennsylvania:
Letter, Robert E. Rubin, Secretary of the Treasury, U.S. Department of the Treasury, October 18, 1995
Letter, James L. Witt, Director, Federal Emergency Management Agency, October 17, 1995
Weber, Jack, Executive Director, Natural Disaster Coalition:
NDPA Accomplishes More in Disaster Mitigation than Administration Proposals with Less Hassle for States and Local Governments, chart
Natural Disaster Coalition Members, list
The Natural Disaster Coalition Organization Profile
The Natural Disaster Insurance Corporation: Estimates of Future Revenues and Expenses, report
DECEMBER 5, 1995
TESTIMONY
Bullock, Jane A., Acting Chief of Staff, Federal Emergency Management Agency, accompanied by George Bernstein, Chairman, Advisory Committee, National Earthquake Hazards Reduction Program
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Dreier, Hon. David, a Representative in Congress from California
Harper, Charles F., President, Harper Perkins Architects, Wichita Falls, TX, on behalf of the American Institute of Architects
Klein, John M., President, Hazard Mitigation Services Company, Inc., Annapolis, MD
McCool, Thomas J., Associate Director, Financial Institutions and Markets Issues, General Government Division, U.S. General Accounting Office, accompanied by Lawrence Cluff, Assistant Director, Financial Institutions and Markets Group
McKinney, Stan, Director, South Carolina Emergency Preparedness Division, Columbia, SC, on behalf of the National Emergency Management Association
Parker, Hon. Mike, a Representative in Congress from Mississippi
Quinn, Rebecca C., Legislative Officer, Maryland Department of the Environment, Annapolis, MD, on behalf of the Association of State Floodplain Managers, Inc
Schwartz, Mark, First Vice President, National League of Cities and Council Member, Oklahoma City, OK
Thompson, Mozelle W., Deputy Assistant Secretary, Government Financial Policy, U.S. Department of the Treasury
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PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Boehlert, Hon. Sherwood L., of New York
Horn, Hon. Stephen, of California
Oberstar, Hon. James L., of Minnesota
Parker, Hon. Mike, of Mississippi
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Bullock, Jane A
Harper, Charles F
Klein, John M
McCool, Thomas J
McKinney, Stan
Quinn, Rebecca C
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Schwartz, Mark
Thompson, Mozelle W
SUBMISSIONS FOR THE RECORD
Bullock, Jane A., Acting Chief of Staff, Federal Emergency Management Agency, Audit of FEMA's Disaster Relief Fund, Office of Inspector General, Audit Division, July 1995
Emerson, Hon. Bill, a Representative in Congress from Missouri:
Proposed Changes to Natural Disaster Protection Act, statement
NDPA Accomplishes More in Disaster Mitigation than Administration Proposals with Less Hassle for States and Local Governments, chart
Horn, Hon. Stephen, a Representative in Congress from California, statement of Dr. Richard Williams, Dean of Engineering, California State University, Long Beach
Klein, John M., President, Hazard Mitigation Services Company, Inc., The U.S. Structure Fire Problem, chart
ADDITIONS TO THE RECORD
Association of State Dam Safety Officials, Inc.:
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ASDSO Draft Federal Legislation
Dam Safety—A National Concern, fact sheet
1994State Dam Inventory Data, chart
Beers, Paul, Advisory Committee Member, Laminated Glass Information Center, statement
City of Oakland, memorandum
Griffin, Mary, Insurance Counsel, Consumers Union, Washington Office, statement
Joslin, Roger, Chairman of the Board, State Farm Fire and Casualty Insurance Co., statement
Kuchnicki, Richard P., CEO, Council of American Building Officials, letter and chart
National Association of Homebuilders, statement
New York Times, article, ''A Storm Over Housing Codes'', December 1, 1995
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H.R. 1856, THE NATURAL DISASTER PROTECTION PARTNERSHIP ACT OF 1995
TUESDAY, DECEMBER 5, 1995
U.S. House of Representatives
Subcommittee on Water Resources and Environment
Committee on Transportation and Infrastructure
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:06 p.m. in room 2167, Rayburn House Office Building, Hon. Sherwood L. Boehlert (chairman of the subcommittee) presiding.
Mr. BOEHLERT. Good afternoon, and welcome to the Water Resources and Environment Subcommittee.
We are honored to have with us today two distinguished members of this body. Our distinguished colleague from the Rules Committee, Mr. Dreier, represents a district that has a direct interest in the legislation we are considering. Earthquakes are a threat to millions of Americans, not only in California, but in other regions of our country as well. Earthquakes pose a unique challenge to all involved, attempting to mitigate their impacts. These are events of extremely low frequency that strike with deadly force.
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We are honored also to have our distinguished colleague from the committee, Mr. Parker. Mr. Parker, through his years of service on this committee, is well versed on the history behind the development of natural disaster legislation. And I look forward to hearing his thoughts on how we can improve our natural disaster preparedness.
Today's hearing on the Natural Disaster Protection Partnership Act is the second hearing this subcommittee has held on this critical issue, and marks an important step toward reaching consensus on how the public sector and private sector can best coordinate to address the enormous threat that natural disasters pose to the financial and human resources of our Nation.
I've got an eloquent statement here, and I'm going to ask that we just put it in the record. And we'll proceed.
[The prepared statements of Mr. Boehlert, Mr. Horn and Mr. Oberstar follow:]
[Insert here.]
Mr. BOEHLERT. Do you have an opening statement?
Ms. MCCARTHY. No, Mr. Chairman, I don't. But I do ask unanimous consent that the statements of Mr. Borski and Mr. Oberstar be placed in the record. They are detained, one in the Ethics Committee and the other on the floor.
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Mr. BOEHLERT. Thank you very much.
I'm sparing the reading of my full statement, because I know the busy schedules. Mr. Dreier, you're supposed to be in three places at once. So why don't we start right off with you.
TESTIMONY OF HON. DAVID DREIER, A REPRESENTATIVE IN CONGRESS FROM CALIFORNIA; AND HON. MIKE PARKER, A REPRESENTATIVE IN CONGRESS FROM MISSISSIPPI
Mr. DREIER. Thank you very much, Mr. Chairman.
And let me say, it's a privilege to see you and ranking minority member Ms. McCarthy here. And I want to say that we've been working on this legislation together for a long period of time. And you and I have testified on this in the past together, and we've worked with our colleague George Brown and others. It seems to me that the commitment that this subcommittee is showing to move ahead is a very positive sign.
It's been five and a half years, in fact, since you and I joined as co-sponsors of the precursor of this legislation, H.R. 1856. At that time, it was known as the Federal Earthquake Insurance and Reinsurance Act. We knew that it would take several years to develop consensus legislation and to sensitizes our colleagues to the need for a comprehensive Federal response.
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And I want to again commend you, Chairman, Boehlert, for continuing to move this process forward. I particularly want to thank our very dear friend and colleague from the Show Me State, Mr. Emerson, for his leadership on the Natural Disaster Protection Partnership Act. His sponsorship of the legislation, along with 249 now co-sponsors, from virtually every State in the Union, is testimony to the fact that natural disasters are not a phenomenon only in my State of California. As we all know, they impact the entire country. And earthquakes themselves actually impact potentially 39 States.
Mr. Emerson's contribution to the Natural Disaster Protection Partnership Act extends far beyond his leadership in moving this legislation forward. In fact, it has been introduced in various forms in every Congress since the 101st Congress. But the Emerson bill is by far and away the best attempt to deal with what I believe is truly a looming economic crisis. Past efforts at natural disaster protection legislation moved away from the concept of providing pure risk-based insurance, and began to take on the characteristics of another Federal takeover of what is clearly a private sector responsibility. And I am very pleased that Mr. Emerson allowed me to join him as a co-sponsor of the legislation.
Mr. Chairman, over the last 6 years, responding to natural disasters has cost American taxpayers over $50 billion at the Federal level alone, $50 billion. In fact, the American people have this pattern. Whenever a disaster hits, where do they look? They look right here to Washington, D.C. With natural disasters increasing in both frequency and in terms of economic and human suffering, they are a contingent liability that we cannot afford to ignore if we are going to make a serious attempt to balance the Federal budget in 7 years, as we all want to do.
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While natural disasters, as I said, are not a California only problem, we in California do have a special responsibility to help find a solution, since our State, which is from my perspective the greatest State in the Union, but as we all know, it is prone to earthquakes, forest fires, droughts, flooding, and other natural disasters, riots and other things, but we won't get into that today.
Such a solution, a private sector solution, is found in H.R. 1856. Aside from promoting disaster mitigation programs to reduce disaster losses before they occur, the NDPPA addresses the fact that affordable disaster insurance coverage is not available in California and other disaster-prone States. Until recently, insurance companies in California were not writing any new homeowners policies because they feared major losses from earthquakes. The only reason that some companies are now writing insurance again is that they have been given permission by the State insurance commission to sell many policies for earthquake coverage.
And incidentally, Mr. Chairman, I'd like to ask unanimous consent that a letter concerning this from our State insurance commissioner be inserted into the record at this point.
Mr. BOEHLERT. Without objection, so ordered.
Mr. DREIER. Mr. Chairman, this is not the solution. If California's insurance crisis continues, the ripple effect will strike at the heart of the State's economy as mortgages fall through and businesses move away, which is something we've seen over the past several years. Our State got a small taste of what could happen when earlier this year Freddie Mac threatened to stop buying mortgages on condominium units in certain areas of California unless earthquake insurance is purchased for the condominium project. A compliance would have been difficult and costly, and the process could have devastated a market that consists disproportionately of low and moderate income families.
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Fortunately, Freddie Mac has reversed that decision. But their initial response to the economic threat of earthquakes was a symptom of the larger problem. Residents of California, Florida and other disaster-prone areas are finding it very difficult to find affordable insurance. And the growing number of uninsured threatens to become a huge financial burden on Federal taxpayers, should another terrible disaster strike.
Mr. Chairman, California is doing its best not to be a financial liability on the rest of the country. The State is working to develop a plan to diffuse the crisis over the short term. Unfortunately, as State officials in Florida have also discovered, no State plan will be adequate to deal with the magnitude of risk that high risk States like California and Florida and others face.
For Federal taxpayers, it's like being the customer in that Midas muffler commercial where the mechanic says, you can pay me now, or you can pay me later. The Natural Disaster Protection Partnership Act calls for the creation of a private, and I underscore, a private corporation, to work in partnership with the insurance industry to write catastrophic insurance and reinsurance.
Based on extensive risk analysis that is also being used for the California plan, I believe that this private sector corporation will expand insurance capacity in California sufficiently to cover everyone at risk, and be able to do so with its own resources. In the event that a catastrophic disaster strikes before sufficient reserves can be built up, the corporation could borrow from the Federal Government.
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But the loan would be limited, must be repaid with market rate interest, and must first be approved by us here in the Congress. In other words, Mr. Chairman, the Natural Disaster Protection Partnership Act is not designed to interfere with the private insurance market. It's designed to correct a market failure that exists due to the inability to predict earthquakes and the damage they cause. It is a good bill that has gotten better with age, thanks to your efforts, Mr. Chairman, as I said, the efforts of Mr. Emerson. We can't afford to wait for another catastrophic disaster to strike before we act.
So it seems to me that as we look at this, we don't want to continue the pattern of having everyone in this Nation look simply to Washington as a panacea for all of the disaster problems that we face.
Thank you very much, and I appreciate the indulgence of the subcommittee.
Mr. BOEHLERT. Thank you very much. And I particularly appreciate the eloquence of your statement.
Mr. Parker.
Mr. PARKER. Thank you, Mr. Chairman. I appreciate the opportunity to address the committee today, and thank the Chairman for the opportunity to do so.
As a former member of this subcommittee, a former insurance company owner, and representative from a State that is subject to a preponderance of natural disasters, I believe that I have some basis from which to speak on this legislation. H.R. 1856, the Natural Disaster Protection Partnership Act, has been conceived out of legitimate concerns about the future viability of homeowner insurance markets. There has been significant testimony on that subject previously.
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What I would like to address today are the profound concerns that I have regarding the philosophical direction of this legislation. Although I am currently a co-sponsor of this bill, I do not support the legislation in its present form. Indeed, I will actively and forcefully oppose its passage should it be reported from the committee as it now reads.
I would like the committee to note that I have the utmost respect for my good friend, Mr. Bill Emerson, and know that in authoring this bill, he has genuinely sought to remedy the serious deficiencies that can be found in particular insurance markets. These deficiencies have emerged due to excessive insured liabilities resulting from recent natural calamities, and the fear and certainty of future disasters.
The Florida and the California insurance markets, for example, are dysfunctional, and the economic impact on the entire country is significant. H.R. 1856 is a good faith effort intended to correct these and other problems. And I applaud Mr. Emerson and the work of this subcommittee for their work and their intent.
However, I believe that the bill is irreparably flawed. Basically, the bill seeks to provide a public sector solution for a private sector problem. In establishing a national disaster insurance corporation, to which primary insurers can virtually seed their potential liability, the bill risks transferring those private sector liabilities to the Federal Government.
Now, the supporters of the bill will deny that allegation, pointing to the private nature of this new corporation. They will explain that the corporation can only borrow from the Treasury, and only when such funds are appropriated, and that these loans must be repaid with interest. But the NDIC is being established by an act of Congress, and as such will take on the characteristics of a Federal bureaucracy. It will seek loans from the Treasury, and the decision of whether or not to appropriate the necessary funds will be a political, rather than an actuarial decision.
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Furthermore, the NDIC is granted very favorable tax treatment in the form of an unlimited carryback deductibility on losses that it incurs. Aside from the cost to the Treasury, this feature of the bill is clearly anticompetitive. As with the Resolution Trust Corporation, I fear that unforeseen, unexpected and unintentional costs will accrue to the Federal Government.
While the concept of the NDIC remains untested, the Congress clearly has the disastrous experience of both the RTC and the Pension Guaranty Trust Corporation to refer to. Notwithstanding the fact that there are significant differences in the structures of these organizations, the similarities are enough to generate my complete opposition to the NDIC.
I am also deeply disturbed by the presumption of the McCarran-Ferguson Act which this bill legislates. McCarran-Ferguson has long guaranteed that insurance rates and regulations be vested in the State regulatory authorities. I have never met an insurance agent, at least among the independents, who believed that McCarran-Ferguson should be preempted, repealed, or even tinkered with.
That is my belief as well. And the presumption in this bill is alone enough to garner my no vote. I recognize the problem we have nationally in being able to establish actuarially sound rates, considering the political nature of most of these State regulatory authorities.
But I reject the notion that the problem can be resolved by removing the authority from the States and placing it in the hands of a national board. This is clearly a step toward national regulation of the insurance industry. Some insurers would welcome such a revolutionary change in the nature of business. I will oppose such an effort to my last day in this body.
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This bill focuses on protecting primary insurers from their own incurred liabilities. It grossly distorts the competitiveness of the marketplace by skewing its protective nature to favor those primary insurers who have garnered a larger share of the market than they can effectively afford to cover. In deciding to oppose this bill, I have felt it was necessary to seek out alternative approaches to resolving the real, legitimate problems that do exist in the insurance markets.
Alternatives do exist. Other witnesses will undoubtedly speak to those alternatives. I am particularly enthusiastic about the approach to the problem developed by an interagency task force within the Administration. The task force has spent as much time and effort as the Natural Disaster Coalition in developing their proposal. Perhaps the coalition and that task force could work together on a viable solution.
I urge the committee to familiarize itself with the Administration proposal and other alternatives. I, for one, am willing to participate in bipartisan efforts to find a real solution to all of the issues emanating from natural disasters. I do not believe that H.R. 1856 represents a real solution. I believe it could in fact exacerbate the current problems, in that if it is passed, we will regret that decision.
Thank you very much, Mr. Chairman.
Mr. BOEHLERT. Thank you very much, Mr. Parker. We do appreciate your statement.
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Ms. McCarthy?
Ms. MCCARTHY. Thank you, Mr. Chairman. And I want to thank you and my fellow Missourian, Mr. Emerson, and Mr. Dreier, and others who have worked so hard in the past on this important legislation. As a former State legislator I followed it with interest. In my own State, I think five congressional districts in my State are affected by flood and other natural disasters.
Mr. DREIER. Excuse me, Ms. McCarthy, you're not only a State legislator, but chairman of the National Association of State Legislatures.
Ms. MCCARTHY. And I note, with interest, they're not testifying today.
But in any event, Mr. Dreier, I am concerned, within my own State, the spokesman for our insurance department said that, for example, State Farm has recently capped the number of earthquake insurance policies it will write, and is increasing the deductibles in the policies, and there are concerns. But my own insurance director has raised some questions about this particular version of the bill, with regard to the States, in particular, three items. And I wondered if you'd comment on those. Mr. Parker raised a couple of them in his comments.
But it lets the insurance industry set its own rates, with no state of Federal review, strips States of their power to intercede on behalf of policy holders who believe they've been wronged, and takes away State authority to approve the policies that are written within their borders.
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Why are you using this approach at this time, instead of something that does what this Congress has been doing for 11 months, which is to return power to the States, and to be sure that that is secured within those unique borders?
Mr. DREIER. Those are obviously very good points, and questions that are raised. And philosophically, as Mike said in his statement, he's concerned about this. And I historically have been concerned about nationalizing what in many ways has been a State or local problem. The main reason that I have supported strongly pursuing this is, as I was saying in my remarks, just take the Northridge earthquake in California, which virtually everyone followed. It was a horrible disaster. We had the busiest freeway in the entire world closed down, the Santa Monica freeway, and spent a great deal of time on that. There were projections that came out as to what the costs would be. Well, right now, the projections of that cost have been five times beyond what were anticipated.
Now, in light of that, as I said, those victims have had a pattern of looking to one place for the solution, and that is right here in Washington, DC. They have looked to the Federal Emergency Management Agency and the Small Business Administration and a wide range of other Federal Government entities. And we want to lessen that demand on the Federal largess.
As people look to this one place, we're hoping that we can bring about, through this effort that Mr. Emerson has launched, and which I'm happy to hear that Mike Parker is a co-sponsor of, even though he's opposed to it in its present form, what we're supporting is the idea of a partnership which will decrease the demand for Federal taxpayer dollars by getting the private sector involved. And that's really about the only way that I would respond to some of those concerns.
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But I would hope that as the legislation proceeds that those three items, and I suspect that Bill Emerson, being from the same State that you represent, is sensitized to those, and I suspect that in his proposal he may have some ways in which we could address those.
Ms. MCCARTHY. I appreciate that. And I appreciate both of your testimonies here today. I do hope when it's time to come to the table, these concerns are dealt with.
Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you. And I know both of our colleagues here are on a tight schedule. Are there any other questions? Mr. Petri?
Mr. PETRI. Just very briefly.
Thank you both for coming. I want to particularly associate myself with Representative Parker's remarks, and say that as Representative Dreier has pointed out, we do have a problem here. But this solution is a flawed solution. And we don't want private liabilities coming in the back door and public money going out the front door. It's not a fair tradeoff.
So we have to work on that very carefully so we can avoid another savings and loan type disaster in the insurance industry. And with that, I just want to thank you both for your testimony.
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Mr. BOEHLERT. Mr. Emerson.
Mr. EMERSON. Thank you.
I want to thank both of our witnesses for their testimony. I find it very valuable. I particularly want to thank our colleague, Mike Parker, for sharing his views with us here. Mike, you and I have discussed some of the issues that you raised here before, and I know that we'll continue to discuss them as the process here moves forward. But I want to assure you that we want to try to accommodate your concerns.
As we've talked before, there's no one in this room that I know of, least of all me, who wants to see the Federal Government step in and take the place of the States in regulating insurance. And I don't think we've done that in this bill. The modifications that I intend to bring up in the markup process will make it very clear that I think we ought to beef up the oversight of this corporation and make sure that oversight comes from the States. And with respect to the creation of the corporation, you rightly point out that there are vast differences between the organizations that you cited in your testimony and the proposed NDIC. I think those differences do have a fundamental impact on how this corporation will function, and the level of the Government's obligation to it.
If we can come up with another way to provide a back stop to the insurance industry to deal with disasters, I am happy to look at it. But I can tell you that a lot of folks have been looking at these issues that we're addressing in this legislation for a very long time, and we haven't yet found a better way. And we think the proposal that we have is a pretty good one, even if we have to make some changes to it.
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Now, there's been a lot of reference here to being willing to join in bipartisan efforts. There is no effort that is more bipartisan than the one that is on the table. So far as I know, we have approximately an equal number of Republicans and Democrats, liberals and conservatives among the 251, as of today, 251 co-sponsors of this bill. There has been nothing that has been partisan about the bill since the very beginning.
As a matter of fact, the task force that existed in the last Congress, that provided the basis for the bill that is before us, was one of those that was so even-handed we had an equal number of the majority and an equal number of the minority. We had a Republican co-chairperson and a Democrat co-chairperson. And there's been no partisanship involved at all in the evolution of this legislation.
So I am a bit, I'm interested, somewhat humored, to hear people saying all of a sudden that we need to have a bipartisan effort, as though this were some partisan effort. I don't think I've ever been involved in anything that was more bipartisan.
As a matter of fact, also, in response to some of the criticisms, we've had ongoing dialogue, with State insurance commissioners, including our own, and State emergency management disaster people, as to their considerations as to how we might improve this legislation. And I have some proposed changes that have been suggested, which in the interest of time, I was going to get into them.
But I know there are reasons for which we need to limit our time here today, Mr. Chairman. I'm going to ask unanimous consent to revise and extend my remarks and insert those proposed changes at this point in the record.
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Mr. BOEHLERT. Without objection, so ordered.
[The referenced material follows:]
[Insert here.]
Mr. EMERSON. And Mike, I want to discuss them with you, also. We need to get together to do that. Because I think there are some things that you're going to find particularly constructive.
Mr. BOEHLERT. Thank you.
Mr. Ewing?
Mr. PARKER. Could I just respond?
Mr. BOEHLERT. By all means, Mr. Parker.
Mr. PARKER. To my good friend, Bill Emerson. I just want to make sure everybody understands my position. Two hundred fifty-one co-sponsors in a bipartisan fashion means that there is a general agreement among the members in Congress that we have a problem and it needs to be addressed. How we go about solving that problem is another thing altogether.
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And if you had to take one, just one part, one thing that we have created in Congress to look to as an example, you need to look at the Pension Benefit Guaranty Corporation. Established in the early 1970s, and in its charter, it says it must fix rates on an actuarially sound basis. They must be actuarially correct. The same language that we have in this bill.
The problem that you have with that is that they haven't done that. And if you will notice, over a period of time, these pension funds, the guaranty on these, the premiums being paid, first they were not enough. They kept getting behind. And right now, we are underfunded by some $40 billion in pension funds throughout this country. And this is a private corporation.
Now, people can say all they want, that the Federal Government is going to stand behind these funds. It doesn't. There is nothing legal that says that we stand behind those pension funds out there. I think we have a moral responsibility. But we haven't even exercised the moral responsibility. And that's the road that we're traveling down on this. And that's where I have my biggest problem.
Mr. EMERSON. If the Chair would indulge me for 30 seconds, just for one retort here.
I might say that I understand what the gentleman is saying. But I remain an optimist, and would hope that we could learn from the mistakes that other entities have made in the past, and frankly, provide the necessary kickers in this legislation to prevent those mistakes from being repeated. And that's what I intend to do, working with the gentleman from Mississippi.
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Mr. BOEHLERT. I thank my colleague. I think you can put your remarks under the heading, come, let us reason together.
Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman. And to my colleagues, thank you for being here.
I think the record ought to show in working particularly with Mr. Parker, who is a little bit on the outside on this, in support of this, that the National Association of Insurance Commissioners of the State organizations around the country has endorsed this plan or some type of similar concept. And I think that's a good place to start working to make this a better bill. I don't think that any of us here want to see the Federal Government come in and regulate insurance. Certainly from a State like Illinois that has very large insurance industry that's very profitable, because it isn't overly regulated.
But I guess to you, my colleague, Mr. Parker, you mentioned that, or I think I read into your remarks that you think that this might be anti-competitive, in the insurance industry. I guess my question is, when you have big companies who feel threatened in their existence to stay in some of those markets, and the smaller regional companies afraid to come into those high risk markets, how is that anticompetitive? How are we going to deal with that?
Mr. PARKER. Well, number one, there's an old saying in the insurance business, you can write more of the stuff than you can afford. And that's exactly what a lot of these companies have done, especially the larger companies in these areas.
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And you really have to separate the two, the wind damage part and the earthquake side. The earthquake side is a very unique thing altogether. From an actuarial standpoint, I still do not know how you can actuarially determine how you are going to have rates for earthquakes. You just don't have a history there that you can deal with.
On the wind damage side, it's very much different. And what you have, you've got the major companies that have gone into some areas that have, that are hurricane, primarily, on the coastal areas, and they have written more insurance than they can afford to write. What they want to do is seed their liability, push it off on the Federal Government. And you're talking about uncapped liabilities on the part of the Federal Government.
Now, when you talk to the NAIC, the National Association of Insurance Commissioners, they agree that there's a problem. Something needs to be done. But when you explain to them you're giving up part of your authority, as a State, in controlling your insurance in this, you will get a much different reaction from them, and whenever they start seeing the implications.
Now, that's the way that I view it. And some people differ in their interpretation. But I think that we're moving along that path.
Mr. EWING. Well, if they've written too much insurance and now they're backing away from it, certainly I would assume they'd like to find some way to mitigate their liability. But they're not writing new insurance. They're backing out of it. Who's going to insure our constituents out there?
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Mr. PARKER. But let me put some blame someplace else, too. Because, I think it's fair to make sure everybody understands all the ground rules.
The insurance commissioners in these States are at fault, too. Because they play a political game, just what we're playing in some ways on the Hill right now with this legislation. The insurance commissioners in these States, they set the rates. And what they should do, in a State like Florida, you should have an insurance commissioner that would put the rate at the level where a company can pay its claims.
But everybody runs for office. And it's not just Florida. It's every other state. They run for office, and they say, I'm going to get elected insurance commissioner and I'm going to protect you from the big insurance companies. And what I'm going to do is keep your rates down.
Well, they've done it. And what they've done is put a lot of these insurance companies in a bind. That's created part of the problem. So there's enough blame to go around. And these insurance commissioners, they need to carry some of the blame, also.
Mr. EWING. One final question. You were in the insurance industry or business. The independent insurance agents are not great fans of the big companies. But they do sign onto this legislation, is that correct, do you know?
Mr. PARKER. That's correct.
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Mr. EWING. Thank you.
Mr. PARKER. But they're wrong.
[Laughter.]
Mr. BOEHLERT. Thank you very much, Mr. Ewing.
Mr. Horn?
Mr. HORN. Thank you very much, Mr. Chairman. I've enjoyed the testimony of both of you. It shows Congressional committees do listen to both sides, and it's helpful to us in crafting the ultimate product.
Mr. Parker, I'm particularly interested in your comments. As I see this bill, there's also a preventive, educational role that I think is important, both for the average citizen as well as for those insuring against these various risks, in the sense that if the education prevention program worked, it would be a much lower cost of one, the original cost of insurance by the taxpayer-consumer, and number two, what would ultimately be paid out by insurance companies involved.
I take it your concerns about the legislation are primarily on the financial side as it relates to the seeming federalization of what has been traditionally in this country the state-run, managed, controlled, whatever, supervised, guided insurance industry. How do you feel about how we might fund education prevention programs related to these disasters which would lower the ultimate cost for both the Federal Government, the insurance companies and the consumer? Do you think that's a worthwhile activity?
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Mr. PARKER. As far as the function of the Federal Government, I'm not sure it is. I will tell you this. I was always fascinated that a lot of people will buy car insurance, and you know, they'll do anything to pay their car insurance, because they might have a wreck. But a lot of people never buy life insurance, even though they're going to die.
[Laughter.]
Mr. PARKER. So people look at things in a weird, weird way. And we can sit around and explain this stuff to people all day long, and tell them what they should do, and they'll still go do stupid things.
I'm not sure that the Federal Government should be charged with the responsibility of telling people to have some common sense. Even though I think there are some things out there that we can do, that is not a legitimate function of the Federal Government. That's my personal opinion.
Mr. HORN. Isn't the Federal Government now paying substantial number of dollars after these various natural disasters because we don't have an organized way to put away some of the money in advance in the sense of the insurance approach, as well as, we are not very well organized in what agriculture has done so well for almost 100 years, and that's agricultural extension, to teach people new ways of doing things.
I don't think people are completely ignorant. Granted, a lot of the attitudes you mentioned there certainly exist. But it seems to me the people also want to know how to do the right thing, like, where's the gas valve to turn that off. The San Francisco earthquake did not destroy San Francisco. What destroyed it was the fact that the water lines didn't have any water to put out the fires, and the gas burned up most of the city.
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Mr. PARKER. But if you turned around and you looked at something like a hurricane, we can have building codes that will build buildings that will withstand most hurricanes that come through. But you have a tremendous cost involved whenever you're putting that together. In a lot of these areas, if you look on the coast of Mississippi, we've got, most of that cost is urban in nature, from a very small strip. If you move back where a tremendous amount of damage is done, that area in there is very rural. There are no building codes. And some even in areas along the coast there don't have building codes. So it winds up being a cost factor more than anything else, when you're dealing with these natural disasters.
Mr. HORN. Well, another way to go at this is an interstate compact, where a lot of States get somewhat similar laws by having sort of a uniform law drafted that the commissioners agree to, and then subject it to the State legislatures. Do you think that's an approach you would also be interested in?
Mr. PARKER. I think it could be utilized. I think that anything, because a lot of these things are common to all of us, if you look at the coast, and we've seen a lot of it on the east coast in the last few years, whenever you look at the hurricane damage that has occurred in Florida, which gets hit more than anybody else, but if you look at the damage in Alabama and Mississippi and Louisiana and Florida, and Texas, just on the Gulf Coast there, you're talking about information which we're already, the different States are already communicating with each other about some things that need to be done.
Mr. HORN. Thank you.
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Mr. Chairman, I'd like unanimous consent to put my statement near your eloquent statement at the beginning of the hearing.
Mr. BOEHLERT. Without objection, so ordered.
And I would point out that we've been joined by Delegate Vic Frazer of the Virgin Islands, who unfortunately has experienced some of the problems we've been talking about. And I was down to the Virgin Islands right after Hurricane Marilyn. I would just say Mr. Parker's right on target in terms of code.
And on the side of the one hill there up over Charlotte Amalie, we looked and all these homes were devastated. But right in the middle, like an oasis in the middle of desert, were two homes that looked like they were newly constructed. They were there prior to Hurricane Marilyn, but had sustained no damage. They were built to a strict code. And where all around them, homes were without the top floor, without the roof, and in many instances, totally destroyed.
So Delegate Frazer, our good colleague and friend, I welcome you here as part of this. And you're welcome to join us up here. If you'd like to participate in the questioning, you're entitled to do so. You've got a lot at stake here.
I want to thank my colleagues for being so enlightening with their remarks.
Mr. DREIER. Thank you very much, Mr. Chairman.
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Let me just say, as a former member of the Banking Committee, I hope very much that we don't take the route of the Resolution Trust Corporation to deal with this issue.
Mr. BOEHLERT. That makes three of us. Thank you very much, Mr. Parker.
[The prepared statement Mr. Parker follows:]
[Insert here.]
Mr. BOEHLERT. Our next panel consists of Mr. Mozelle Thompson, Deputy Assistant Secretary for Government Financial Policy, Department of Treasury; Jane A. Bullock, Acting Chief of Staff, Federal Emergency Management Agency; and Thomas J. McCool, Associate Director, General Government Division, General Accounting Office.
And we will go in the order designated.
Let me say to all of our witnesses today that your statement will appear in the record in their entirety. We would ask that you try to restrict your formal presentation to 5 minutes, so that we'll have an opportunity for all to participate and have a good dialogue, questions and answers.
Mr. Thompson, you're up first, if you're ready.
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TESTIMONY OF MOZELLE W. THOMPSON, DEPUTY ASSISTANT SECRETARY, GOVERNMENT FINANCIAL POLICY, U.S. DEPARTMENT OF THE TREASURY; JANE A. BULLOCK, ACTING CHIEF OF STAFF, FEDERAL EMERGENCY MANAGEMENT AGENCY, ACCOMPANIED BY GEORGE BERNSTEIN, CHAIRMAN, ADVISORY COMMITTEE, NATIONAL EARTHQUAKE HAZARDS REDUCTION PROGRAM; AND THOMAS J. MCCOOL, ASSOCIATE DIRECTOR, FINANCIAL INSTITUTIONS AND MARKETS ISSUES, GENERAL GOVERNMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY LAWRENCE CLUFF, ASSISTANT DIRECTOR, FINANCIAL INSTITUTIONS AND MARKETS GROUP
Mr. THOMPSON. Chairman Boehlert and members of the subcommittee, thank you for this opportunity to appear before you to discuss the need for a comprehensive and fiscally sound approach to natural disasters.
We all recognize the magnitude of the costs associated with disasters in recent years, and share concerns about providing affordable disaster insurance in communities across the Nation. We commend the subcommittee under your leadership and Congressman Borski for addressing this issue.
The Clinton Administration has taken a long, hard look at how the Federal Government, together with the States, localities and the private sector, can assist Americans in their communities to withstand natural disasters and their aftermath. As a result, on February 16, the Administration forwarded to the Congress a comprehensive set of proposals on disaster assistance and disaster-related insurance. I have attached a copy to my written testimony.
While Secretary Rubin recently expressed his concern regarding certain aspects of H.R. 1856, we believe there is common ground between the Administration and the Congress on one, the importance of reducing societal losses from disasters, two, improving the Nation's ability to handle losses that do occur, and three, rationalizing the Federal response to natural disasters. Based on these common objectives, I hope that we can take advantage of this opportunity to work together to establish a sound Federal policy on natural disasters.
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On its face, H.R. 1856 appears to share many of the principles laid out by the Administration in discussing an approach to natural disasters. Both recognize that any solution must reflect Federal budget constraints, and have some recognition of the established framework of the private insurance industry. Both acknowledge that current premiums cannot sustain the levels of insurance coverage in high risk areas. We believe that a responsible approach to this problem should meet the following additional criteria.
First, any Federal liability or responsibility should be well defined and bound. Second, any solution should rely on the private sector, and large new Federal programs should be avoided. And three, any insurance program should not result in a Federal guarantee of solvency without regulatory authority, including over rate setting. While H.R. 1856 contains a number of worthwhile provisions, there are substantial number of items within the bill that conflict with the basic principles that we believe should shape a Federal response.
Our principal concerns rest with the proposed Natural Disaster Insurance Corporation, referred to as the NDIC. First of all, establishing the NDIC with the ability to borrow from the Federal Government would expand the Government's liabilities without explicit bounds. Although the legislation states that the terms for such borrowing must ensure repayment within 20 ears and be at an interest rate that does not result in a Federal subsidy, the intent to shield the Federal Government from liability will not be realized under this structure.
The bill protects the NDIC by allowing it to take out a Federal loan after the occurrence of a large disaster. This feature runs counter to sound insurance principles that direct the prefunding of contingent liabilities. As a result, the Federal Government and the taxpayers will be responsible for paying off what is likely to be a very large amount of unfunded insurance losses. With greater actual liabilities after occurrence, the NDIC would have a negative equity, and would effectively be insolvent.
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Second, the NDIC would effectively be a monopoly, a creature of the insurance industry. The NDIC's access to the Government pocketbook will give it a unique advantage in issuing homeowner disaster insurance.
Third, the NDIC will significantly distort the reinsurance market, and finally, given the company specific insurance trigger, the NDIC would inappropriately bail out private insurance companies.
The Administration has an alternative approach that's set forth in our testimony. We suggest working with companies, regulators and consumers to develop a phased-in policy for residential dwellings and mortgages issued or owned by federally-related lenders and secondary market entities. We believe that that will expand capacity. We also suggest that the committee consider adopting an excess-of-loss program to provide a specific but limited layer of reinsurance type coverage that improves the distribution of loss protection across industry participants.
This approach is not intended to be the unlimited guarantor of insurance industry solvency that's contemplated under H.R. 1856, but instead permits the Federal Government to support the industry in a crucial segment of insurance without requiring subsidy in a manner that limits Government liability.
We can discuss more about this upon questions, but in concluding, the Treasury strongly supports the subcommittee's effort to address critical problems associated with natural disasters. We also believe that any legislative solution should be integrated and comprehensive. I believe that by combining our efforts, a result is within reach. And we look forward to working with Congress on these issues.
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Thank you, Mr. Chairman, and members of the subcommittee.
Mr. BOEHLERT. Thank you very much, Mr. Thompson.
Ms. Bullock.
Ms. BULLOCK. Chairman Boehlert, members of the committee, it is an honor to appear before you today to represent Director James Lee Witt, Director of the Federal Emergency Management Agency.
As members of this committee know, Director Witt cares very deeply about the issues that are being discussed here today. He has asked me to express his support and his appreciation for the support you have given him and to our agency as we have responded to over 80 disasters in the last two and a half years.
With me today is Mr. George Bernstein. Director Witt asked Mr. Bernstein to join me today so we can respond more fully to your questions. Mr. Bernstein has been working with FEMA for many years on risk reduction issues, first as the first Federal Insurance Administrator, then later as Chairman of the advisory committee to the National Earthquake Hazards Reduction Program.
Let me start by saying we applaud the efforts of this committee to look at the very difficult problem of providing relief to disaster victims. This legislation raises many questions as to what the appropriate public policy for funding disasters should be, for reducing disaster costs, and what the public-private partnership should be.
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One of the things we are most proud of at FEMA is that when the American public really needs us in times of disaster, the Government will be there to help them. Today, I would like to share with you FEMA's perspective on this bill. Our perspective is somewhat unique. We deal with disasters every day. We have seen what works and what doesn't. We have seen places where codes have not been enforced and where local governments have not been prepared. At the Federal level, Director Witt has taken major steps to improve emergency management and to reduce disaster costs.
We recognize that our ability to respond is closely tied to State capability. To improve this, in 1995, we implemented partnership agreements with the States that will allow the States to plan for the risks that they face, and to focus on mitigation activities. We have applied new technologies and streamlined some of our functions to save costs.
In the recent winter California floods, the Director suggested that we involve our people to do outreach efforts, to have people apply for disaster assistance by telephone as opposed to coming into disaster centers. We used this means in Texas and in Georgia, and in the flooding in the southeast. This one change has saved us over $40 per application.
We are also centralizing and streamlining our application processing systems. But through this undertaking, we believe we will save almost $20 million per year.
But the most significant savings comes from mitigation, preventing people and communities from becoming disaster victims. After the Midwest floods, this committee worked closely with Congressman Volkmer and Congressman Gephardt to pass an amendment to the Stafford Act. This amendment, which was strongly supported by the Administration has made available the most significant amounts of funding for mitigation activities in a post-disaster environment. What it is allowing us to do is buy out and relocate over 10,000 structures out of the flood plain. And the results have paid off.
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In Grafton, Illinois, during the 1993 floods, we processed over 433 applications for assistance. In 1995, when Grafton was hit by a comparable flood, we processed 11 applications. In Arnold, Missouri, where a local government was forced to pay over $15,000 a day for sandbagging efforts, during the 1995 flood, which once again was a comparable event, they only paid $5,000. The State of Missouri alone has calculated that the buyout and relocation program will save them $200 million over a 10 year period. We project that for every dollar we're putting into that program we will save $2 in disaster claims.
Northridge gives us another example of how mitigation works. We know that buildings and bridges and infrastructure that was built to a modern code or retrofitted performed very well during that event, those structures that did not perform well. And besides the cost of repair, the economic costs from the damaged infrastructure was great. In our experience, rebuilding the infrastructure is by far the majority of cost in a disaster.
Recognizing this, the Administration submitted to Congress a policy paper referenced by my colleague Mr. Thompson that explored options for reducing disaster costs, options that include insuring that new construction doesn't contribute to the problem by tying and linking Federal assistance to construction to modern codes and enforcement of those codes.
It also talks about establishing a pre-disaster mitigation fund that will concentrate on improving the existing critical facilities. We also recognize we must encourage States to take on more responsibility, and we are suggesting establishing a level of insurance or self-insurance for their public buildings.
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We also suggested that we provide more incentives to State and local governments by providing them with a more attractive cost share for disaster assistance if they do pre-disaster mitigation activities.
Mr. Thompson has spoken to you about the insurance aspects of this issue. While insurance shifts the costs, only mitigation will reduce the costs. We believe the Administration's policy paper provides reasonable parameters for us to jointly develop solutions to these issues. Unfortunately, Mr. Chairman, we believe this bill does not provide a solution, and will not significantly reduce FEMA's costs under Stafford.
More importantly, the insurance industry bail-out provisions will massively increase the exposure of the Federal Government after a disaster. If this bill were in place during Northridge, the impact would have been less than 3 percent reduction in FEMA's infrastructure costs.
In addition to the concerns raised by Mr. Thompson, I would like to mention two other major areas of concern. First of all, there is no requirement to implement any mitigation activity. Availability of insurance without the mitigation requirement could actually make the problem worse. Second, under this bill, Congress will have to appropriate funds for insurance companies after a disaster, if premium income is inadequate, which we expect to happen. This is in addition to continuing to make appropriations for disaster assistance. This will mean disaster victims will compete with insurance companies for funding from the Federal Government after a disaster.
We want to work with this committee to identify opportunities to reduce costs and to help us build better communities. We agree that insurance can be a tool to providing assistance in the aftermath of a disaster, but the insurance must be tied to real mitigation. We have already begun a dialogue with groups that can play a role in making this happen: State and local governments, the insurance industry, the banking industry and consumer groups.
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This week, we are convening the first national mitigation conference, which will bring together over 800 participants to discuss what works and what doesn't work in implementing mitigation programs. Continuing this process, Director Witt has invited the CEOs of major insurance companies to join with him on January 26th to talk about mutual goals and opportunities to partner. We expect this to be the first of several such meetings.
In closing, Mr. Chairman, President Clinton and Director Witt have made a commitment to the American people that their Government will be there to help them in time of need, when there is a major disaster. We have made it the highest priority to work to help people and communities from becoming disasters in the first place.
Thank you very much.
Mr. BOEHLERT. Thank you very much. And please convey to Director Witt our appreciation for his continuing cooperation. This is coming from a Republican, but I happen to think that he's one of the stars of the Administration, and that FEMA's doing an outstanding job under very difficult circumstances.
Next we have the Associate Director for the General Accounting Office for the General Government Division, Mr. Thomas J. McCool.
Mr. McCool.
Mr. MCCOOL. Mr. Chairman, I'd like to introduce my colleague Lawrence Cluff, who is Assistant Director in our Financial Institutions and Markets Group.
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Mr. BOEHLERT. Welcome.
Mr. MCCOOL. Mr. Chairman and members of the subcommittee, we are pleased to be here today to provide our comments on H.R. 1856, which would establish a federally-chartered corporation to provide natural disaster insurance and reinsurance. The objectives of H.R. 1856 are to reduce the loss of life and property as well as the economic consequences of future natural disasters, including reliance on Government disaster assistance.
To achieve these objectives, the bill proposes multi-hazard mitigation programs to encourage States, communities and property owners to reduce potential damage from natural disasters, by building structures better able to withstand such disasters. The bill also proposes to establish a federally-chartered corporation to provide primary insurance to protect residential property owners against financial loss resulting from damage due to disasters and reinsurance to protect insurers from large residential and commercial losses arising from such catastrophes.
While the insurance industry has so far absorbed losses from recent natural disasters without large scale failures, there has been concern expressed in the industry about its ability to handle future losses from potentially larger catastrophes. The Federal Government also has absorbed substantial losses from past disasters, and if current trends continue, could pay out even larger amounts in the future. As a result, the Federal Government clearly has an interest in reducing both the total amount at risk from a disaster as well as the Federal share of losses.
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While our statement today does not address mitigation, we wish to emphasize that mitigation efforts are the only way to reduce the total amount at risk. Insurance programs can only shift risk and the share of losses among the affected parties. I'd like to go through some comments we have on both the insurance program and the reinsurance program and then I have a few comments on the Natural Disaster Insurance Corporation.
Under H.R. 1856, the Natural Disaster Insurance Corporation would be established to provide primary insurance covering homeowners against damages resulting from earthquakes, volcanic eruptions, tsunamis and hurricanes. The NDIC would provide the coverage on its own behalf as a supplemental insurance contract to the standard homeowners policies of those private insurers that elect to act as service providers for the NDIC.
H.R. 1856 attempts to deal with two often-conflicting goals, actuarial soundness and affordability. Both of these goals will be difficult to achieve. Setting actuarially sound rates will be a difficult task, in large part because of data and technological limits to predicting earthquake and volcanic risks.
Affordability of disaster insurance would be enhanced if the risks can be effectively spread among a large number of policy holders, however, and the bill has two mechanisms to increase participation. First, the bill's purchase mandates may increase the number of homeowners who buy disaster insurance, possibly enough to allow for lower rates. Second, the participation can be increased by limiting the expected availability of post-event Federal disaster relief, because as long as people expect relief, they are reluctant to pay for insurance coverage.
However, the effect of these provisions on coverage is likely to be limited, because under the bill, most households will qualify for disaster relief, even without insurance. And the purchase mandate only covers federally-related mortgage loans, and may be difficult to enforce.
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Now, from the standpoint of the reinsurance program, under H.R. 1856, the NDIC would provide reinsurance to any private insurer, reinsurer or State insurance pool that meets its eligibility requirements. Each eligible entity would pay a premium based on several factors, including its financial standing and exposure to disaster losses. The reinsurance would be payable when covered losses exceeded trigger levels specified in the bill.
Our greatest concern with the proposed reinsurance program is that the basis for triggering reinsurance payments to private insurers and reinsurers would expose the NDIC and ultimately the Federal Government to significant losses while limiting the exposure of the insurance industry and individual insurers. The payment triggers in H.R. 1856 would be based on the amount of surplus held by the industry and individual companies.
The bill appears to suggest that the insurance industry would pay losses equal to 15 percent of industry consolidated surplus before the NDIC would begin to pay reinsurance. In fact, the actual losses paid by insurers under the industry-wide trigger could be considerably less than the total trigger amount. The industry would pay the full 15 percent only in the event that every insurer in the industry sold in the disaster area and had losses that at least equalled 15 percent of its surplus. If any major companies had losses less than 15 percent of capital and surplus, there would be a correspondingly greater liability for the insurance program.
Now, turning to the corporation, the most significant change in H.R. 1856 compared with previous proposals was the creation of the NDIC to provide disaster insurance to homeowners, and to sell reinsurance to the private insurance industry. Other privately owned entities have been chartered by the Federal Government to achieve the public policy objective of ensuring that adequate private funding was available to meet some publicly desirable need.
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The NDIC would share a number of similarities with these other Government sponsored enterprises. It, too, would be established by the Federal Government to fill a public policy objective, because the lack of disaster insurance coverage or at least its expense is perceived as a market failure. In addition, the NDIC would be able to issue debt in private markets at a cost that, because of its links to the Government, would likely be below private market rates. Moreover, the NDIC would have authority to borrow from the U.S. Treasury.
However, the NDIC would differ substantially from most other GSEs in that its operation and governance would be exempt from Government oversight and regulation. The NDIC would be functionally an insurance company, yet the NDIC would have no solvency or net worth requirements. Moreover, its policy holders would have few of the protections provided by the State insurance regulatory system that oversees other insurance companies around the Nation.
Finally, the bill provides no Federal control or oversight of NDIC policies and actions that would ultimately determine its solvency and its ability to pay legitimate claims without loans or other assistance from the Federal Government.
In summary, under the current environment, either a mega-catastrophe or a series of closely timed disasters could greatly strain or even overwhelm the capacity of the insurance industry, and at the same time result in large Federal payments for disaster relief. The Federal Government clearly has an interest in reducing both the total amount at risk from a disaster as well as the Federal share of losses. A well designed mitigation program, along with an insurance program that provides incentives for mitigation would help to minimize the total amount at risk.
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The goals of improving hazard mitigation, and reducing Government financial exposure to natural disasters, are laudable. While this bill has many positive features, there are also issues which warrant close Congressional attention. These issues include aspects of both the proposed primary insurance and reinsurance programs, and particularly the federally-chartered corporation that would be established to carry out these programs.
The NDIC would be an unregulated, privately-owned entity that could potentially expose the Federal Government and taxpayers to significant losses. The NDIC would resemble other GSEs in its public policy purposes and its powers. Yet the NDIC would not be subject to oversight of its risk taking or solvency.
We believe that the NDIC's public policy purpose of protecting homeowners and private insurers from the financial devastation arising from natural disasters, the sheer size of its catastrophic obligations, and the probability that the Federal Government would bear losses in the event of the NDIC's failure makes it appropriate to ensure that the Federal Government's and the taxpayers' interests are protected when considering the merits of H.R. 1856.
Mr. Chairman, that concludes my statement. We'd be glad to answer any questions.
Mr. BOEHLERT. Thank you very much, Mr. McCool. I want to thank all the panelists from the Administration.
Mr. Thompson, one of the problems that you've outlined that the Administration has with the bill is the sort of limitless liability in terms of the Federal Government. How would you place a limit on the liability?
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Mr. THOMPSON. What we've suggested is creation of an excess-of-loss program under which the Treasury would option reinsurance contracts. Those reinsurance contracts would be on terms that would be defined and bound. They would be for a range of a disaster occurrence between $25 billion and $50 billion. And in that range, there is no one in the current market writing reinsurance for that level of loss.
Also, we would pay out on that insurance a certain amount that's defined by contract. There would be an option. The option would have a price that would be a base price plus a premium that would be used in part to fund the mitigation program that my colleague, Ms. Bullock, outlined.
But what it would also do, it would prefund that liability, because there would be money that would be brought in, that price would be determined on an actuarial basis on a defined risk, and therefore, there would be a liability, but it would be boxed and it would be defined.
Mr. BOEHLERT. Ms. Bullock, Mr. Thompson mentioned the mitigation provisions. Do you think that the mitigation provisions of this bill conflict or replace or compliment existing Federal mitigation assistance? And the one example I would use is the National Earthquake Hazards Reduction Act.
Ms. BULLOCK. Mr. Chairman, the mitigation provisions of this bill have no teeth.
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Mr. BOEHLERT. Have no teeth?
Ms. BULLOCK. Have no teeth. What is called upon in the bill is for the States to do plans. To do plans that never require them to take another action. It doesn't require them to make sure that local actions are taken.
One of the things we've learned so much from our work in the National Earthquake Hazard Reduction program is that in order to make mitigation happen, you have to provide incentives, you have to provide tools, you have to work with local governments. Mitigation happens at the local level. This bill would provide no support for that activity.
Mr. BOEHLERT. Ms. McCarthy?
Ms. MCCARTHY. Thank you, Mr. Chairman.
Ms. Bullock, I wanted to follow up on the mitigation point, because Missouri, as you mentioned in your testimony, is a success story, due in very large part to FEMA being there and saying let's work together, let's prevent this in the future. As a member of the State legislature at that time, there were lots of interesting debates about zoning actions and flood plain development. And I just want to commend you and the agency for stepping up to the plate. It does make a difference.
But my concern is, if you link the assistance, as you mentioned, disaster assistance to mitigation efforts, which is a very good thought, and one we should pursue, what do you do then in situations where the States aren't perhaps in the same position that Missouri was, able to participate in aggressive mitigation efforts with you. Perhaps they are a poorer setting or situation, or poorer communities that just can't get to where you say they need to be in order to get this disaster assistance.
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Have you given some thought to how you shape the mitigation effort to take into consideration those communities whose expectations, or who we see as having a more difficult time of reaching your expectation in order to receive that help?
Ms. BULLOCK. Yes, we have. And that's one of the things that we're doing with our partnership agreements. We recognize that States are at different levels, either budgetarily or from a performance and capability standpoint, as to what they can do in mitigation.
And under these agreements, what we will be doing is trying to work with States to focus the funding they get under FEMA's existing emergency management programs, to bring that level of capability up, particularly in mitigation. And we're working with States, for example, a State like Mississippi, to focus on hurricane preparedness and hurricane mitigation.
The bottom line, and with the buyout program, one of the things I should make clear is the buyout and relocation program and all of the mitigation programs that we do under Section 404 of the Stafford Act in the post-disaster environment are based on priorities States make. They are the ones that determine the priorities. We worked very hard in the Midwest to leverage Federal funding.
So for some of those States that didn't have as much budgetary money coming either from FEMA or from the State, we worked with HUD to leverage some CDBG money to make this happen. The successful mitigation is going to be leveraging funds.
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One other proposal that James Lee has been very active in supporting, and has been speaking to States across the United States about this is to work with them to set up State disaster mitigation funds like he did in Arkansas, and have a part of this funding be dedicated towards mitigation, especially in years where that State doesn't have any disasters. So there's a whole package of things that we think can be brought to bear to make it possible, even in those States whose capability may not be quite at the level of some of the more advanced States.
Ms. MCCARTHY. That is reassuring to me. Because I would not want any State or local government which lacked the resources to engage in aggressive mitigation efforts to then be left out of this process. Because it is, as you point out, very important to link the two, and that those communities and States that aren't quite able to meet that do need your extra assistance to do so.
And I just want to raise that point with you, so that we, as we go forward on this and take this particular part of the bill and improve upon it, that we keep that in mind.
Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you.
Mr. Emerson?
Mr. EMERSON. Mr. Chairman, I apologize that I had to excuse myself for a few minutes. I want to defer to my colleagues who have been there throughout, then you can come back to me.
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Mr. BOEHLERT. All right, fine.
Mr. Ewing?
Mr. EWING. Thank you, Mr. Chairman.
Ms. Bullock, I want to associate myself with the comments about your director and how he has operated very smoothly. I would like to ask, though, that your testimony was not here ahead of time, and so we weren't able to study it.
But you talk about promoting mitigation. And you talk about what you did in Illinois—I'm from Illinois—and the buyout and the move. But you know, that's not realistic in what we're trying to get at with this legislation. You can't buy all the coastlines and move people to get them away from harm's way like you did on the Mississippi River in one small town. Would you want to comment on that?
Ms. BULLOCK. Yes, I would. I apologize—
Mr. BOEHLERT. You mean are you asking her to comment on whether or not the Administration is willing to buy the coastline?
Mr. EWING. Well, I think that goes without saying, Mr. Chairman. But you know, we talk about that. I think we've got to talk about realistic options here for what we're dealing with. And the example of the small town in Illinois, which hasn't all worked that well, if I read right in the local press, is not an example that makes much sense for the major areas of this country that are in harms way.
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Ms. BULLOCK. Well, I would agree that that's just one option that we have for a mitigation program. In speaking about mitigation along coastal areas, there are many options that can be looked at. And the key to good mitigation programs is to have an appropriate building code in place and enforced. In coastal areas, building codes that require elevation of structures above a certain level, that require that roofs be tied down, and that appropriate windows be in place so that a roof won't blow off, whether a hurricane or tornado comes through. Those are things that State and local governments have responsibility for, and that FEMA is working very closely with those jurisdictions—
Mr. EWING. But pardon me, isn't that part of the idea behind this legislation, to promote that type of building code and enforcement?
Ms. BULLOCK. It does promote it, but it doesn't require it, nor does it have any penalty if it's not in place, other than a very weak penalty.
Mr. EWING. But that could be strengthened?
Ms. BULLOCK. Oh, yes, it certainly could be.
Mr. EWING. I want to go on to another question. Do you support, does your agency support the $5 per capita self-insurance requirement for Federal assistance after a disaster?
Ms. BULLOCK. As I testified in my oral statement, we are looking at that as a very solid means to help States either insure or self-insure their public buildings. As I mentioned, the infrastructure costs after an earthquake are the largest part of our disaster costs. And we believe that if we were to put in place a $5 per capita or a sliding scale amount up to $5 per capita, once again recognizing that there are some State and local jurisdictions that may not have the budgetary resources to get to that $5 cap immediately. But yes, we are in favor of such a proposal.
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Mr. EWING. You know that that's part of this proposal, of the proposal before us today?
Ms. BULLOCK. Yes. And that is one of the proposals that we do endorse. And it accounts for the infrastructure costs, the savings cost that I mentioned relative to Northridge.
Mr. EWING. There was some confusion as to whether your agency was for it or against it. And I just wanted to clear that up. You are for it, and it is in the bill.
Ms. BULLOCK. We're for it, with some modifications to it, based on our work with the State and local governments.
Mr. EWING. Have you given the committee detailed suggestions for your modification to this legislation?
Ms. BULLOCK. Mr. Congressman, we have not. We have a problem in doing that. Because we do not think this bill will work as currently written. And we believe that amending the bill will not work. And we have offered, and continue to offer, to sit down with the committee and the committee staff and the groups that are involved, using the Administration's policy paper as a parameter to begin to put together a vehicle that addresses our concerns and your concerns, that is good public policy, does not provide for real mitigation, and does not overly expose the Federal Treasury.
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Mr. EWING. Mr. Chairman, with your indulgence, just one response.
It is important for us to know what this Administration wants to do in detail. And I'm certain that you are aware that you can strike everything after the enacting clause and start over. And that's always a possibility. But it isn't a very good or effective game for the Congress to play one game and the Administration another, guessing what you want or you think is good policy. I would certainly suggest we hear from you and get it out there. Thank you.
Mr. EMERSON. Would the gentleman yield?
Mr. EWING. I will yield.
Mr. EMERSON. Let me say, the gentlelady has just made the point, the witness has just made the point that she is so is so available to meet and talk with interested parties. I don't know who on the committee staff you've contacted, but as the principal author of this bill, I've just checked with my legislative director, and no one from FEMA has been in touch with me to say they wanted to talk with me about it. And that might at least be a starting point.
Can you tell us who you identified on the committee staff here who you want to work with so closely?
Ms. BULLOCK. Congressman, we have, the members of the Interagency Task Force that were the fundamental authors of the Administration policy paper that was submitted to Congress, have met regularly with members of the committee staff to talk about the proposals in the policy paper.
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Mr. THOMPSON. And as I said in my testimony, that we are willing to talk and discuss how the mechanisms will work, the ideas we have, our concerns about what's in H.R. 1856, and importantly, what we think are common ground issues, areas where we think that are good ideas.
Mr. EMERSON. Well, if the gentleman from Illinois will yield further, you're dancing all around this. Congress will establish what legislation is before it. The bill that is before us is the bill of which I am the principal co-sponsor that has 251 co-sponsors. That is the bill on which you ought to be focusing rather than some white paper of some interagency task force—
Mr. BOEHLERT. Let me point out to my colleague—
Mr. EMERSON.—that may or may not at some point be put in legislative form.
Mr. BOEHLERT. Let me point out to my colleague from Missouri that there have been some ongoing discussions with professional staff of the committee, and also with the Chair. And I think more dialogue is needed, there's no doubt about that. And I think you're seeing expressed a willingness to sit down and work and sort of work these things out.
Because I think we're all coming from the same beginning. We want to do something to address this issue, and we want to be effective in responding to it. I think we've got a good start, and I think some, you've already indicated today you have some proposed adjustments to your original legislation. I think that's very constructive. And it's come about because we've had these hearings and the open dialogue.
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Mr. EMERSON. If the Chairman will yield—
Mr. BOEHLERT. Be glad to.
Mr. EMERSON.—and he's been most cooperative in accommodating my interests here, I'm really puzzled by what I'm hearing here from the witness table. It's though we've been in some secret cabal down here cooking up some piece of legislation that the rest of the world couldn't know about. I might say why I'm so shocked is it's been so totally out in the open, it's been so bipartisan and non-ideological, as I said all along, in the last Congress, the 103rd Congress, we probably had 50 separate sessions of our task force.
And frankly, Director Witt, for whom I have an extremely high regard, I think he's one of the most competent members of this Administration, I truly mean that, we come from the same region of the country, and I'm familiar with the great work he's done, disaster-related, in our corner of the world, and I have the highest regard for him, which is one reason that I'm having difficulty integrating here this totally negative statement from his agency.
And his witness here today, he having participating so fully in our task force deliberations, he knows I'm available to him. He certainly knows that my predecessor, as a principal co-sponsor of this measure, Mr. Mineta, was available to him.
So it's no secret that this legislation has been in the making, in development for some long, long period of time. And if FEMA had wanted to have major input prior to this juncture, in addition to that which they have in fact already had through our task force, the opportunity has been there all long.
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Mr. BOEHLERT. The floor is yours, Mr. Emerson, you may continue.
Mr. EMERSON. Well, thank you. Mr. Horn was here before me. If he had—and Mr. Frazer.
Mr. BOEHLERT. All right. Mr. Horn. We'll go to Mr. Horn. We'll get back to you.
Mr. HORN. Thank you.
Mr. BOEHLERT. You are borrowing time from Mr. Ewing, whose time had expired. But the Chair is being unduly generous.
Mr. Horn.
Mr. EMERSON. I appreciate the Chair's generosity.
Mr. HORN. Thank you very much, Mr. Chairman, and my colleague from Missouri.
As with most of my colleagues on this side of the aisle, we have very high regard for Director Witt. We think he's the first person that's known what he's doing in that agency in a very, very long time. I noticed, Ms. Bullock, that you said that H.R. 1856 would have reduced the Federal costs of responding to the Northridge earthquake by only 2 and a half percent. Do you think this is indicative of the savings this bill would achieve for future disasters?
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Ms. BULLOCK. The 2 and a half percent figure that you see in that calculation was based on implementing the $5 per capita provision. And that's where that figure came from. So assuming we implement that part of the Administration proposal, which was then added to the revision to the bill, we believe that would be the minimal impact in any future disasters. But once again, that per capita may be different, depending on the State in which the disaster occurred.
Mr. HORN. Is there a goal the agency has in terms of percentage that they would like to see hit by any process that can be developed?
Ms. BULLOCK. Well, we've been working extensively on this in the last few months to look at where States begin an assessment of where the capability is in certain States, and also to see how fast we can progress within the States on doing disaster funds, which would give us a little bit more latitude in this. I think the $5 per capita is a good goal to set.
Mr. HORN. What's the sort of diminishing return? Should it be $10 per capita, $7.50 per capita, $6 per capita? What's been explored?
Ms. BULLOCK. Well, we're exploring a lot of options besides just the insurance or the self-insurance provision. And I think that has to be part of a whole package that we're looking at, as to what State or localities should do in mitigation. For example, the $5 per capita would be possibly one provision, and then if the State went beyond that, we would potentially look at giving them a better cost share relationship, should they experience a disaster.
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So it's very clear. Under the earthquake program that Chairman Boehlert talked about, we submitted to Congress several reports, and Mr. Bernstein was the primary author of two of them, about impediments to implementing, in particular, earthquake mitigation programs. The biggest impediment was providing incentives to State and local government, because of other priorities that State and local governments face for small or diminishing budget dollars. Incentives, such as the ability to help them get self-insurance or buy insurance, incentives through a better cost share can help them work with their own governing bodies to get support for mitigation.
Mr. HORN. In my role as a member of the Government Reform Oversight Committee, I'm going to be chairing a hearing at Northridge on January 19th. And I would appreciate if I could get your analysis used to calculate that 2 and a half percent, so we could take a look at it. We're asking the Director to testify. I think our staff and your staff are in touch with each other.
Let me ask one more question. And that is, do you foresee the mitigation provisions of H.R. 1856 conflicting, replacing or complimenting the existing Federal mitigation assistance, such as the National Earthquake Hazards Reduction program? How do you feel about that?
Ms. BULLOCK. The mitigation provisions of this bill fundamentally require a plan. They have no economic incentives to go beyond that. They have no real penalties to go beyond that. A plan will not, if a plan is not implemented, it will not have an impact on mitigation. It is our strong concern and desire that to make a mitigation program work, you have to have some teeth in it. You have to have some incentives in it, and you may have to have some requirements in it. This proposal in this bill has none of that.
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Mr. HORN. Thank you.
Mr. EMERSON. Would the gentleman yield?
Mr. BOEHLERT. The time is going to be yours. Mr. Horn, are you finished? All right, Mr. Emerson.
Mr. EMERSON. I have a comparative chart that I would like to insert at this point in the record. Following the lady's answer just concluded, there is a lot in this bill have to do, mitigation was one of the principal concerns of the task force. We heard from many good witnesses about mitigation, including Director Witt. And I want to insert in the record at this point a comparison of the different proposals, certainly between our Natural Disaster Protection Partnership Act and the White House white paper on disaster assurance, which shows that we do indeed have more by way of mitigation than you are proposing.
[The referenced material follows:]
[Insert here.]
Mr. EMERSON. But now, Ms. Bullock—one other unanimous consent request, Mr. Chairman. I would like to have permission to address questions to all of the government witnesses at the table here this afternoon. You and I have talked, and I know that we are time limited here this afternoon. And I would like to have a lot of time, but will be content if we may submit questions in writing, with the expectation that they will be answered in a timely way.
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Mr. BOEHLERT. I don't think—first of all, yes, that's a very proper request. And I don't anticipate any difficulty whatsoever in getting a timely response to your pertinent—
Mr. EMERSON. Well, that leads me to the point I was going to make to Ms. Bullock. You've know, Ms. Bullock, for more than a month, that you were to testify at this hearing. And your testimony was received by members approximately 5 hours prior to the commencement of this hearing, it having been delivered to the subcommittee staff around 7:00 o'clock last evening and we having received it at 9:00 o'clock this morning. And so that we have not had an extensive opportunity to review your testimony, although we have read it. You have come forward with sort of a barrage here of allegations about this legislation that has been on the table for so long, and is somewhat responsive to the work that we did in the last Congress with your own boss on the subject.
So I am a bit confused as to what the purposes you are trying to promote here today. You know, I've heard here a number of references about your willingness to work with us, yet this is the first that I have heard of it, although you may have with the Chairman and some members of the subcommittee staff. The Chairman is an original co-sponsor of the bill. But he did not formulate the legislation. And I am always available to visit with you or anyone from your agency about these points that are of such vital concern to you about which we have previously heard nothing.
So I just would have a number of questions to ask you in writing, as a follow-up to your testimony here today.
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Mr. BOEHLERT. You may respond to that, if you wish.
I am curious about why we didn't get the testimony until 9:00 o'clock this morning.
Ms. BULLOCK. Well, I apologize for any inconvenience that might have caused the committee. I would also like to assure the Congressman that James Lee Witt is always available to meet with members of Congress. And I'm sure that we will be more than happy to arrange a meeting between the Congressman and Director Witt at your earliest convenience.
I think that my testimony representing the Director and the agency's standpoint reflects very closely the position that we held several months ago at a previous hearing. When our concerns at that hearing remained the same as our concerns here, that insurance, without mitigation, will simply not work.
Mr. BOEHLERT. Let me ask Ms. Bullock, if I may, that you make it a priority item to tell the Director that the subcommittee would appreciate if you would schedule a meeting with the principal author of this bill, and the mover, Mr. Emerson. He's deeply interested in what you have to say and I think you can work something out, hopefully.
Ms. BULLOCK. Absolutely.
Mr. BOEHLERT. All right, thank you.
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Mr. EMERSON. Mitigation, coming from the part of the country that I do, has always been a matter of high interest to me. I'm really rather appalled by the statement here today because the Director was indeed so fully cooperative with us in the deliberations of the task force over the course of the preceding 2 years that to come here now and plaintively indicate that you haven't been in the loop, but that you have all of the answers, something is amiss here.
I hope this isn't one of those cases where the Administration feels it must be different than the Congress simply for the sake of being different from the Congress. Because this is a subject area that has very, very broad bipartisan concern, interest and sponsorship. So you shouldn't feel that this is the Administration versus a Republican dominated Congress. There are probably as many Democrats involved in pursuing this legislation as there are Republicans.
Ms. BULLOCK. Congressman, I can assure you that Director Witt and the Administration does not consider this a partisan issue.
Mr. EMERSON. I wouldn't think he would.
Ms. BULLOCK. No, Director—
Mr. EMERSON. But I'm wondering about his staff.
Ms. BULLOCK. Director Witt has said on numerous occasions that disasters have no political boundaries.
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Mr. EMERSON. I'm familiar with that.
Mr. BOEHLERT. I think we can all agree on that. And with that, we'll go to the next questioner. Mr. Frazer, welcome.
Mr. FRAZER. Thank you, Mr. Chairman.
Mr. Chairman, I'd like to publicly thank you for visiting the Virgin Islands soon after the disaster as a representative of this committee to have a first-hand look, and also to make sure that your daughter, who is a resident of my district, was doing well.
Mr. Chairman, I had an occasion to visit with Director Witt today, to thank him again on behalf of the people of the Virgin Islands for the continuing response that FEMA has provided to the Virgin Islands in the wake of Hurricane Marilyn.
But I would like to say to Ms. Bullock, Ms. Bullock, we are having an insurance problem in the Virgin Islands, because as a result of Hurricane Hugo in 1989, many insurance carriers that had been writing policies but not reporting to their home offices, when Hurricane Hugo hit in 1989, people who thought they were insured were sadly informed that the insurance home offices never even knew they existed. Many of those insurance executives are now in Federal institutions. But that doesn't do us any good.
As a result of that, we were left virtually without any insurance, and Hurricane Marilyn came, and more than 50 percent of the people were exposed without insurance. Yes, FEMA is assisting in the new building code that we have just adopted, based on one from Florida. However, I am a co-sponsor of this bill. And I too recognize that this bill as written is not a panacea.
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However, I want to ask, if we view it as a starting point, what are the areas, aside from the ones that most of us recognize, such as regulatory input, either by the Federal Government or by the Congress, not to have the insurance industry viewed as having a blank check to the national Treasury, recognizing that most jurisdictions are now incapable of digging themselves out from natural disasters, whether it's hurricane or earthquake.
What are the areas that you find in this bill that are salvageable? And if in fact it is viewed by the agency as not being a bill that can be salvaged, what would you recommend that I say to the constituents in the Virgin Islands as to the issue of insurance? We are not able to take care of ourselves, not that we're a poor house. We, like every other jurisdiction, find it increasingly difficult to dig ourselves out from natural disasters. Is there any part of this bill that the agency views as salvageable, and if in fact there are, could you please tell us what they are?
Ms. BULLOCK. First of all, Congressman Frazer, I would like to give the opportunity for my colleague, Mr. Thompson, to comment on this, as well as Mr. Bernstein.
Mr. THOMPSON. First of all, with regard to the bill's provision about oversight, even if there is oversight, that in and of itself is not enough. The fact that there's a linkage to the Federal Government as a backstop through loans and that it's done on a post-hand basis rather than before the fact, there's no prefunding, presents a significant problem, and in fact, makes this entity look like a Government-sponsored enterprise and all that entails. So there's not a bound liability structure.
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But what's more important though is that we believe that, and I think that we've gotten pretty broad based support from industry and many experts about the excess-of-loss program that we have for reinsurance, we believe that that will provide additional capacity so primary insurers can go in and provide insurance for catastrophic risk.
Mr. BERNSTEIN. Congressman, I think the problem that FEMA sees for the bill, which has been expressed on many, many occasions to the proponents of the bill in the insurance industry, is that it's inherently flawed, that it can't be corrected by an amendment here or an amendment there. While we recognize the utmost good faith and good will of the drafters of the bill in Congress, we think that the bill fails to recognize that you may have an intractable problem here that cannot be solved by any legislation like this, and perhaps may not be solved.
The problem with this particular legislation is that it is inherently contradictory. It professes to try to solve your problem by making insurance available at reasonable costs. It then says there shall be no cross-subsidization, that high risks should pay their rate, and low risks should pay their rate. It expresses the intent that there be a broad spread of risks, and that many people purchase this insurance. And it talks about affordability of the coverage.
Those things cannot be achieved by this or any other insurance legislation, or by any insurance program. And until that is recognized, we're all going to keep going back and forth. And as Congressman Emerson is frustrated by the lack of specifics, I think many of those specifics have been conveyed, if not to him, to at least the backers of the bill.
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This bill essentially says you can take two and two and get five, that somehow by putting this in a Federal context, money is going to be there that wasn't available before. If this bill charges actuarially sound rates, people who are subject to hurricane or earthquake risk are going to pay more than people who aren't.
And if those people who aren't can buy their insurance privately, they're going to do that and there will be no spread of risk. If people have to pay their own rate to a high risk rate insurer, those rates are going to be a heck of a lot higher than they are today, particularly in earthquake prone areas, where current rates don't even contemplate the type of natural disasters that this bill is predicated on, namely a 7.8 Richter scale earthquake in San Francisco, and a 7.0 Richter scale earthquake in Los Angeles.
So rates, unless there's a subsidy from some source, are going to have to be exceedingly higher than they are today and as you heard from the Congressman from, I believe Mississippi, he recognizes, as all of us do, that insurance rates are already depressed for political reasons by State insurance commissioners.
So you can imagine what would happen if in truth actuarial rates, as promised by this bill, ever took place. No one could pay them. If you think you heard something when the elderly wanted repeal of those amendments to Medicare, you can believe how quickly they'd be here complaining to you about being forced to buy insurance they can't afford.
Therefore, you've got to get a subsidy. And you've got to get a subsidy through only one way, under this bill, which is prohibited, namely from low risk insured. Now, if low risk insureds end up paying the high risk insureds, you get another unfairness. The only other way to do it is by a direct, open Federal subsidy. Congress chose to do that with the flood program. It chose to do that with the crime program. It openly admitted that these were insoluble problems on a true insurance basis, and you needed a subsidy. Until this legislation recognizes this, this legislation will never properly address the problem.
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Mr. FRAZER. Ms. Bullock, or anyone, are you saying that you don't see a role for the Federal Government in natural disasters?
Ms. BULLOCK. Excuse me. I see a definite role in providing incentives to mitigation. And I think my colleague Mr. Thompson sees and has expressed a clear in the excess loss contracts, which he might like to elaborate on.
Mr. THOMPSON. We believe that that would assist the insurance industry and keep in place the mechanisms, some of the mechanisms it has. There is a reinsurance market. There is a primary insurance market.
But by having this excess of loss program, it would in the end not crowd out the insurance market, but increase their capacity, and eventually that they would be, it's possible the reinsurance market will be able to write additional risks in the area of $25 billion to $50 billion where they don't right now.
Mr. BOEHLERT. Mr. Emerson?
Mr. EMERSON. I would just ask Mr. Bernstein if he would state your credentials.
Mr. BERNSTEIN. I have been retained for the past almost 2 years on and off by FEMA as a consultant on natural hazard insurance programs.
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Mr. EMERSON. Natural hazard—
Mr. BERNSTEIN. For this type of, your type of legislation.
Mr. EMERSON. So you're a consultant to FEMA?
Mr. BERNSTEIN. That's correct.
Mr. EMERSON. Would you elaborate? You have spoken, as I sat here and listened to you, as rather somewhat the ultimate authority on the subject. So I just wondered if we could have for the record your credentials.
Mr. BERNSTEIN. If you want me to, I'd be glad to. But—
Mr. EMERSON. I would want you to.
Ms. BULLOCK. In addition, because Mr. Bernstein has served as the chairman of the first expert review committee which produced the first consensus report out of the earthquake program that dealt with directions in the National Earthquake Hazard Reduction program, which included as an issue looking at the need for a Federal insurance program. Subsequent to that, Mr. Bernstein also served as chairman of the National Earthquake Hazard Reduction Program Advisory Committee for several years.
But we will be happy to provide for the record Mr. Bernstein's credentials.
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Mr. EMERSON. I would appreciate that. I think it's important that we have that for the record. Mr. Bernstein has spoken with great authority and I think we should know. You've come, he was not on the witness list. That's why I ask that. You've come with some staff supporting you in the positions that you've taken and the allegations you are making, and I think it's important that we understand the background and the credentials of the people you've brought with you. So if you would supply that for the record, we would appreciate it.
Ms. BULLOCK. Absolutely. And Mr. Congressman, I didn't realize, I did mention that Mr. Bernstein was also the first Federal insurance administrator. I think when I gave my oral statement, you might have been out of the room. But we will be very happy to provide it for the record.
Mr. EMERSON. I would appreciate that.
Mr. BOEHLERT. Thank you very much. And I want to thank all the panelists very much.
Our third and final panel today consists of Mr. Mark Schwartz, of the National League of Cities; from the National Emergency Management Association, Mr. Stan McKinney, who is the Director, South Carolina Emergency Preparedness Division; from the Association of State Floodplain Managers, Rebecca Quinn, Legislative Officer for the Maryland Department of the Environment; from the American Institute of Architects, Mr. Charles Harper, who is President of Harper Perkins Architects, Wichita Falls, Texas; and from the Hazardous Mitigation Services Company, Inc., Mr. John Klein, President. Mr. Klein is from Annapolis, Maryland.
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For all the witnesses on this panel, I want you to know that your entire statement will appear in the record. We would ask that in the interest of time, you try to summarize in 5 minutes or less. We won't be overly strict on that, if you're in the middle of a thought or sentence. But we would ask that you consider the schedules of every one here.
And I ask that Mr. Schwartz, who was announced as our first witness and has some travel connections—we will allow you to go first. And if you have to bow out, we can understand that. The planes don't hold up for National League of Cities or anyone else for that matter.
Mr. Schwartz.
TESTIMONY OF MARK SCHWARTZ, FIRST VICE PRESIDENT, NATIONAL LEAGUE OF CITIES AND COUNCIL MEMBER, OKLAHOMA CITY, OK; STAN MCKINNEY, DIRECTOR, SOUTH CAROLINA EMERGENCY PREPAREDNESS DIVISION, COLUMBIA, SC, ON BEHALF OF THE NATIONAL EMERGENCY MANAGEMENT ASSOCIATION; REBECCA C. QUINN, LEGISLATIVE OFFICER, MARYLAND DEPARTMENT OF THE ENVIRONMENT, ANNAPOLIS, MD, ON BEHALF OF THE ASSOCIATION OF STATE FLOODPLAIN MANAGERS, INC.; CHARLES F. HARPER, PRESIDENT, HARPER PERKINS ARCHITECTS, WICHITA FALLS, TX, ON BEHALF OF THE AMERICAN INSTITUTE OF ARCHITECTS; AND JOHN M. KLEIN, PRESIDENT, HAZARD MITIGATION SERVICES COMPANY, INC., ANNAPOLIS, MD
Mr. SCHWARTZ. Thank you, Mr. Chairman, members of the committee.
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My name is Mark Schwartz, and I'm a city council member from Oklahoma City. I was just recently elected as the First Vice President of the National League of Cities, and I am very pleased to present our views.
The National League of Cities represents some 135,000 municipal elected officials in cities and towns located throughout the United States. And we are the ones who will have to hire the code enforcement folks that were discussed earlier by members of the other panels before the committee. Local governments, as you know, and as we learned so abruptly and tragically in my city last April, are the first level of government to respond to disasters of all kinds. And we are the ones who are involved throughout the entire recovery process.
We are pleased to have this opportunity to contribute to the debate on reform of the natural disaster insurance system. However, to ensure changes that are equitable for all our taxpayers and all levels of government, we will need more time. We were not members, to my knowledge, of the task forces that have been going on. And we see a great need for reform. We do believe that we have to reduce the reliance on federally-subsidized disaster relief.
Under the current system, after a catastrophic disaster, naturally taxpayers cover much of the cost for recovery. In 1995, Congress passed rescission legislation to replace money spent to recover disaster costs. And as a result, Federal funding for municipal programs was cut sharply to cover Federal payments resulting from these disasters.
Just to cover Northridge alone was more than $10 billion, is my understanding. That was cut from programs serving municipalities in the last year. Therefore, we believe we have a significant stake in the restructuring of the program.
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We have reviewed the legislation and have a few comments we'd like to express. Our number one priority at the National League of Cities is to support necessary and fundamental changes in governments to reduce Federal deficits, balance the budget and realign government so that it is more effective and accountable.
With this in mind, NLC believes that any reform of the Stafford Act should create a responsible and fiscally viable disaster relief insurance system within the private sector as much as possible. It should not leave ultimate liability with the Federal Government and the American taxpayers.
We understand that under the proposal, if the NDIC premiums held in trust account were insufficient to pay for the insurance claims, and other expenses resulting from a federally-declared natural disaster, the U.S. Treasury would provide a loan to the NDIC in the amount it could pay back in full over a 20 year period. Ultimately, if not paid back, are we back into a bailout situation by the Federal Government, and have we gone from one step and come full circle to where the Federal Government is paying the bill again.
Ultimate Federal liability could have many different fiscal ramifications. It might serve as a disincentive to the insurance industry to set realistic risk-based premiums and could encourage homeowners not to buy adequate disaster insurance coverage. This might leave us where we are today with the American public needing and expecting the Federal Government to step in and pay for damage and loss resulting from catastrophic natural disasters.
We are concerned for the well-being of moderate and low income homeowners, as are the drafters of H.R. 1856. However, the bill's proposed exemption of homeowners with incomes below $60,000 per year from the purchase of disaster insurance could eliminate a very large group of homeowners and possibly jeopardize the soundness of the new disaster insurance program. A significant portion of the American population have incomes below $50,000 per year.
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We would also like to know more about how the NDIC could continue to cover the losses from natural disasters if it has to pay off multiple Federal loans as a result of claims exceeding its premiums held in the trust account. If passed, it could eliminate the risk to the NDIC and its members; private insurers. If we are looking at this as being in the private sector, the question is, private sector is private sector, there is significant risk in private business. A lot of people make a lot of money, some people don't. My law practice would be thrilled to be able to come and get a 20 year loan as well.
It appears as I read this bill that only homeowners are covered. And I might be mistaken, but I've gone through the bill twice, and it appears businesses are not covered under this legislation. What about people who own condominiums? What about the business that's down the street? Why not consider everybody, whether they have a Federal mortgage or not, get all the players, everybody who basically owns a piece of property in the country could go into this program, instead of narrowing it to just homeowners with federally-insured or federally-guaranteed loans.
We believe and would ask the committee to consider not only requiring all property owners to invest in this, and be part of the program, but we support developing an incentive-based disaster insurance and mitigation system, which would encourage homeowners to assume responsibility for building new homes to code and locating them out of high risk areas, and retrofitting existing homes to reduce future losses.
I would ask whether a sound insurance system has to rely on: preemptions of State and local government authority to ensure that the best building codes and land uses are employed. and imposition of expensive unfunded mandates on States and localities to achieve enforcement of codes. It would costs a lot of money if I have to go out and start hiring people to be code inspectors. I have no way to pay for it. Are punitive enforcement measures necessary to make sure that mitigation plans are carried out in high risk areas.
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We believe it is possible to develop a program that the committee desires. We have just not had the opportunity to go through the policy process with the National League of Cities, which encompasses cities from across this country to inquire what people think. I have colleagues in California who can't get insurance, and in the Virgin Islands, throughout this country.
We have to find a way to help those people, without any question. I think this is the right direction. But there are still a lot of questions that I would like to have my colleagues throughout this Nation address.
We agreed in Phoenix, this past week, at the National League of Cities annual conference, that our Public Safety Committee will make this a priority for 1996. We would like the opportunity to really go through our policy process and assist you as fast as we can in this matter.
Mr. BOEHLERT. Thank you very much. We would welcome any assistance you might care to render.
Mr. SCHWARTZ. Mr. Chairman, may I add one other comment, not related to this issue. But I would like to, not having previously had the opportunity to express to those members of Congress and Congress as a whole our thanks for the assistance that you provided to Oklahoma City this past summer. We have great appreciation for your concern and your assistance, and to Mr. Witt for his great work as well.
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Mr. BOEHLERT. Thank you very much. And congratulations to you, we're going to be seeing more of you, as you have been elected first vice president of the National League of Cities.
Mr. SCHWARTZ. I was in Phoenix this past weekend, and I guess I haven't been home in about 10 days. It's time for me to get on a plane and go home to the family. I'd be more than pleased to take a minute or two of questions. And I know it's an indulgence on the rest of the committee and the panelists.
Mr. BOEHLERT. I think your statement speaks well for itself. You can go catch that plane, go see the family, Mr. First Vice President. We'll see you some more.
Mr. SCHWARTZ. Thank you, Mr. Chairman, I appreciate it.
Mr. BOEHLERT. Next, in the order of introduction for the National Emergency—
Mr. EWING. Mr. Chairman, pardon me. Before the witness leaves, we might like to propose some questions to the witnesses, and hope that—
Mr. BOEHLERT. Oh, yes, that's a standard rule. All the witnesses are prepared to accept written questions and respond in a timely manner.
Mr. SCHWARTZ. We will do so, Mr. Chairman.
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Mr. BOEHLERT. Thank you very much.
Next we'll go to Mr. Stan McKinney.
Mr. MCKINNEY. Thank you, Mr. Chairman, members of the committee.
On behalf of the National Emergency Management Association, I'd like to thank you for the invitation to provide comments on H.R. 1856, the Natural Disaster Protection Partnership Act. NEMA represents the State directors of emergency management of the 50 States and 8 U.S. territories who are responsible to our governors for the establishment and maintenance of an integrated and responsive emergency management system and structure, as well as protecting the citizens of our States from natural and man-made disasters and incidents.
Before I begin my comments on H.R. 1856, I'd like to thank the authors of the legislation for inviting NEMA to work with them to make certain revisions to the bill which would better ensure that it meets its goals of reducing the costs of disasters and requiring effective and enforceable mitigation measures. NEMA has stated many times before we believe that affordable all hazards insurance coverage should be available to all citizens, and that individuals should take personal responsibility for their property by purchasing insurance.
We also believe that all hazard mitigation to reduce the loss of life and property is a key element to reducing disaster costs. NEMA is pleased that H.R. 1856 recognizes the value of mitigation and the States look forward to receiving funds to support mitigation activities at the State and local level.
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As I just mentioned, NEMA has been working with Congressman Emerson's staff and other advocates to make revisions to H.R. 1856. A large majority of NEMA's suggested changes have been agreed to, and we are very appreciative for that. After polling all of the States and territories on H.R. 1856, there remain five issues which cause the States some concern.
First, the provision that causes all States the greatest concern is the proposed requirement that States be responsible for a certain amount of disaster costs before they are eligible to receive Federal disaster assistance for damages to public property. A deductible set at $5 per citizen in the State per event is unacceptable, based on the extraordinary amount of money that the States are already spending on disaster mitigation, preparedness, response and recovery.
Second, H.R. 1856 would require States to include in their mitigation plans processes for improving responder capabilities, developing standards and guidelines for training responders, and ensuring all builders, plumbers and building inspectors are licensed or certified. This provision represents a significant departure from the current focus of State mitigation plans as it blends disaster preparedness and response with mitigation.
This bill takes an important step in addressing mitigation. But it must not be confused with preparedness and response. Mitigation has been the weak link in emergency management systems. We urge you not to miss the opportunity to address true mitigation in a meaningful way.
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NEMA would also suggest that prescribing projects, activities and use of funds to the States conflicts with the Federal Government's performance partnership agreements with the State which provide increased flexibility in exchange for increased accountability. Development and implementation of hazard mitigation plans is a State responsibility, and therefore States should have both the responsibility and the authority to determine and prioritize mitigation projects, policies and activities based on the unique needs identified in each state.
Third, H.R. 1856 proposes to make households with incomes at $60,000 or greater who do not purchase insurance coverage ineligible for Federal disaster assistance. NEMA believes that all persons need insurance, and that all persons should take protective measures. However, any effort to segregate the population based on income we feel is inappropriate. In addition, an income means test is inconsistent with Section 320 of the Stafford Act.
Fourth, as explained to NEMA by the authors of the bill, the section of H.R. 1856 regarding an increased Federal share of disaster assistance would require, in the event all funds are expended from FEMA's disaster relief fund, and there arises a need for emergency supplemental appropriation by Congress, any increased share of disaster assistance beyond the 75/25 cost share under the Stafford Act must be included in the supplemental request and voted on by Congress.
NEMA opposes this provision in the bill for two reasons. First, it is inappropriate to single out States that experience disasters after FEMA's disaster relief fund has run dry. And secondly, it is unfair to subject those States to a political battle between individual members of Congress who may or may not want a particular State to receive an increased share of Federal assistance. If the intent of Congress is to take the politics out of disasters, this provision will not accomplish that objective.
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NEMA believes an increased Federal share of assistance should be infrequent and based on the level of devastation of a state. NEMA recommends that a formula be developed outside the political process, which would establish through regulation the thresholds at which a State would receive an increased Federal share of assistance. NEMA would support FEMA in the development of such an objective criteria.
Fifth, H.R. 1856 as written would have a 7 and one quarter percent of insurance premiums, or $200 million, set aside in the mitigation account, whichever amount is less. NEMA strongly believes that as this program grows, so should the commitment to mitigation. Mitigation is a long-term activity, and its success is dependent upon a consistent level of funding. Any set dollar amount means that less funds will be available in the future due to inflation. If the goal of this legislation is long term risk reduction, the greatest amount of funds available rather than the least amount should be set aside for the mitigation account.
In conclusion, NEMA supports several of the principles contained in H.R. 1856. We do suggest, however, that there be additional modification to the provisions mentioned here today. Once again, NEMA would like to thank the committee, Congressman Emerson in particular, for inviting NEMA to comment on this bill. NEMA promises its continued cooperation and strong support for mitigation in the States. We would be glad to answer any questions at the appropriate time.
Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you, Mr. McKinney, for your testimony and your pledge of cooperation.
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Next we'll go to Rebecca Quinn, Legislative Officer, Maryland Department of the Environment, appearing for the Association of State Floodplain Managers. Ms. Quinn?
Ms. QUINN. Thank you, Mr. Chairman and members of the committee.
The Association is a volunteer organization representing over 2,000 professionals at the State, local and private levels, including chapters, and I believe 12, maybe going on 13, States. We represent much of the in the field experience in mitigation that has been gained over many years, of course, primarily focused on flood mitigation. We also have over 20 years of experience at the State and local level with the Government's only hazard insurance program, and that is the National Flood Insurance program.
And I think that gives us a unique perspective to comment on both the mitigation provisions as well as some of the implications of the insurance provisions.
Our members are involved in flood hazard management and mitigation activities every day in the process of making development decisions. We believe in doing it right the first time. If you build correctly, and that goes beyond codes, but in some cases zoning, but recognizing where are the hazards and where are the best places to build. But if you do it right in the first place, then you don't have problems to fix. It's much better to identify and avoid the risks than it is to have to patch up afterwards. The lack of risk identification in this bill we believe is a serious shortcoming.
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We also work after flood disasters to identify opportunities to lessen future damage. These activities are what mitigation is all about. We thank you for the opportunity to share our perspective, for your consideration as you look at alternatives.
Keep in mind please that many natural events aren't big enough to make the evening news or the headlines. And most don't qualify for Federal disaster assistance. I'm reminded that when your house is flooded, it's a disaster for you, even if your neighbors are high and dry. So keep in mind that anything that affects hazard insurance and hazard mitigation can have far-reaching effects, far beyond just the big ones. And far beyond saving Federal dollars, which is of course an admirable goal. However, mitigation done correctly saves private and public dollars at all levels.
Mr. Ewing asked about examples. We have in our recent experience successes from floods, moving houses or elevating them. I think we can give you some examples from other hazards as well. In hurricanes, FEMA has shown adding shutters and strapping roofs down can reduce damage. In earthquakes, strapping appliances, especially gas appliances, so they don't shift around and create a fire hazard. These are fairly low-cost mitigation techniques that can be individualized for structures.
The Association of State Floodplain Managers is concerned that what you are considering is so big that a minor weakness could rapidly propagate into a big problem. We believe that many questions have not been asked, much less answered.
But this bill has more than a few minor problems. As an overall statement, we feel that the mitigation provisions in this bill won't work. And indeed, they are quite a conflict with mitigation as we have developed it, through a State and Federal partnership with FEMA over the last several years. And I believe that the successes of those programs stand as testimony to the effectiveness.
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We'll just touch on a few of our concerns. Our testimony has of course a much more in-depth statement. An overarching concern has to do with the fiscal implications that of course could lead, we feel, to billions of dollars of Federal liability, a liability over which this bill gives no control to the Federal Government, nor is there a State role.
When faced with something that's difficult to accomplish, we've all heard the phrase, and I apologize in advance if this is the wrong thing to say here, but we've all heard it said, it would take an act of Congress to change something. Well, quite literally, and figuratively, well, not just figuratively, if this corporation was doing something that we didn't like or you didn't like, it would take an act of Congress to make a change. And we feel that's a dangerous precedent to establish.
The Flood Insurance program has close Congressional oversight. It is not rates that are set solely by FEMA. They have a lot of data behind them. But indeed, Congress has oversight. Congress has put caps in order to assure that its purposes are preserved.
We caution that this bill does appear to significantly alter the purpose of Federal disaster assistance. It shifts it away from augmenting State and local capabilities toward support for the private insurance industry. It would be in conflict, that would certainly be in conflict with the purposes of the Stafford Act, which would be amended by the bill.
The Association understands the benefit of having hazard-prone homes covered by insurance. That's one of our primary goals. And we are interested in getting more people to buy insurance. But this bill will not do that. We feel there is a serious problem with the mandatory purchase requirement. Given the experience of the flood insurance program, we find it difficult to believe that so many people would just line up to buy this insurance. And if you look carefully at the mandatory purchase provision, it won't kick in until the corporation's participants have 51 percent of the market. And it just doesn't work that way, even when floods point out so clearly where the hazards are.
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We support local building codes. Of course, keep in mind that is focused on new construction, and millions of older homes will remain vulnerable, and are the ideal targets for mitigation. We feel very strongly that if there is a Federal benefit that it's somehow tied to building codes, then the codes must have a Federal minimum standard. The current building codes are established by a consensus of their members without any Federal involvement.
I'd like to emphasize, and I have some sympathy with my colleagues who just departed, in terms of the community role in building codes. We need to emphasize more than enforcement that we basically have local jurisdictions putting a policeman on every construction site. Obviously, that's expensive. I'd like to talk more about accountability, and for the builders and their responsibility to comply with code, and their long-term liability.
The mitigation provisions in the bill would significantly conflict with the provisions of the Stafford Act, which I mentioned we feel are workable. We'll never be perfectly in sync with FEMA, but we feel that we are developing a good working relationship and we're all moving in the same direction. And this bill I think could seriously derail some of those efforts.
Mitigation is defined in the profession currently as actions to reduce the long-term vulnerability and damage. It should reduce the need to respond, not enhance the ability to respond.
A new source of mitigation funding is attractive. Don't get me wrong, we'd love to have another $200 million to work with. But quite frankly, it's not enough for us to turn our sights from the details. And we hope that you will see that there's a lot more at stake here than just giving States and communities a couple of hundred million dollars to do work. We want the money. There are good places for it. But we're very concerned that the way the bill is structured, it may imply that the money would go to some recipients that won't give us some long-term mitigation.
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Funding for public infrastructure and buildings for retrofitting is attractive. We feel that this language is very confusing.
The far-reaching implications of the bill must be evaluated more fully. They are intriguing and perhaps promising, but certainly we feel are not fully formed. We will make very specific recommendations. We're very willing to work with the members and their staff to craft workable mitigation provisions as you reformulate this legislation.
Thank you.
Mr. BOEHLERT. Thank you very much. And I didn't find your testimony amusing, but as you were testifying, I can recall when I was a young married, and got into my first house, never lived in a house in my life until I was married and had two children. And we had a flood. And I ran downstairs with all these buckets, and I'm taking the water in the bucket and putting it in the sink and putting it in the sink. And my neighbors were looking at me and just laughing at me. I recall those days of yesteryear. Oh, well.
The next witness, from the American Institute of Architects, President of Harper Perkins Architects of Wichita Falls, Mr. Charles F. Harper. Mr. Harper, welcome.
Mr. HARPER. Good afternoon. As you say, I'm Charles Harper, President of an architectural firm in Wichita Falls, Texas, and a recent mayor of the city of Wichita Falls. I appreciate this opportunity to present the views of the American Institute of Architects on Natural Disaster and Insurance Protection Act.
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The AIA has been actively pursuing mitigation and help to cities all over the world since 1970 under undertaking. Every day, architects confront the need to incorporate mitigation measures in our designs. We do not only want buildings to function well and improve the quality of life, but we also want them safe and sound. No federally-related insurance program should be enacted without strong mitigation programs. To do otherwise would waste billions of Federal taxpayer dollars and fail to protect the built environment.
That's why the Loma Prieta earthquake was so great. The technology and the practices in the United States at this time are ever-increasing. But we still have a lot of problems to go. So despite the progress in saving lives, why do buildings still fall down and blow away. For one thing, old buildings incorporate old technology. And even new ones will have problems if not maintained.
In the Northridge quake, previously retrofitted schools failed to inadequate maintenance. Shoddy construction, inadequate inspections and the failure of local and State governments to enact the latest building codes have also contributed to a lack of building safety.
Following Hurricane Andrew, a Dade County grand jury found that 85 percent of Andrew's destruction was related to roofing systems and material failures. American building codes are so unevenly applied architects face bewildering challenges to conform with them. In some areas, jurisdictions do not require building codes or building permits. Despite Hurricane Hugo, South Carolina today still has no statewide building construction code and half of that state's counties, many at risk, have no code protection from damaging hurricanes. In my State, Texas, cities may adopt any of the three national model building codes, but counties do not adopt any code at all.
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There is no national program providing for a minimum standard of laws and practice for disaster mitigation. My testimony lists the wide range of risks that exist in different places. No area is immune. For example, since 1700, there have been 3,500 earthquakes east of the Mississippi.
H.R. 1856 is on the right track in calling for national multihazard mitigation programs. It would improve the Federal framework for States to design flexible programs that protect their people, their buildings and communities, and taxpayers dollars.
The AIA supports provisions directing FEMA involvement in research and technology. The more we know and apply, the better we can make buildings to withstand actual forces. This bill ought to specify FEMA's partnership with the private sector and academia to stretch Federal dollars and its knowledge base.
The legislation proposes a FEMA sponsored National Academy of Sciences study of the feasibility of a national consensus of minimum building construction standards to reduce natural disaster injuries and damage. The study should take into account the work that the national model code groups are already doing in this area. The architects of the Nation are working today on new and better ways to cope with the natural forces, so that the legislation should include architects, engineers and other design professionals on the academy's panel conducting the study.
The AIA prefers the first option in the bill. This would bring all codes of disaster-prone States into line with the nationally accepted standards. It would cover areas now omitted from the building code and promote greater uniformity within and among States. We understand that these provisions are being reconsidered. We believe that placing responsibility for disaster mitigation in the hands of the States providing uniform treatment makes sense. Localities could adopt the State code as their own and enforce it. The State of Virginia does this now.
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The key to effective mitigation is not code adoption, but effective code enforcement. I just returned from a week's visit to the U.S. Virgin Islands and Puerto Rico, after Hurricane Marilyn. I wanted to see if their mitigation and response programs had changed their ease of recovery from Hurricane Hugo just 6 years ago. The Virgin Islands was told after Hugo that they needed to establish a tough code that would stand up in hurricanes. And we said to them that what you build back today is the grist of the next hurricane.
They did not follow that advice. While the Virgin Islands enacted a stronger building code, the code was not enforced. More than half of the houses and buildings that we examined a couple of months ago that were built after Hurricane Hugo had no hurricane clips at the wall or roof connection. This is only one example of the problem we face.
The bill's requirement for development of State mitigation plans require direct building code enforcement. Most States have such plans. Many do not enforce it. We would like to thank the committee, Mr. Chairman, and especially Mr. Emerson for his work on this. We think it is a good start. We want you to keep up the good work.
Mr. BOEHLERT. Mr. Harper, thank you very much for your testimony. I couldn't agree more with you, it doesn't do much good if you have strong building codes and you have no enforcement.
Our final witness today, Mr. John M. Klein, from the Hazard Mitigation Services Company, Inc. He is the President. Mr. Klein?
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Mr. KLEIN. Good afternoon, Mr. Chairman and members of the committee.
It's an honor to appear here today, and I thank you for the opportunity to testify about natural disaster protection. My focus is on mitigation, and I don't represent any special interest group. I'm a practitioner in mitigation, out there where the rubber meets the road.
I applaud the general concepts of the Natural Disaster Protection Partnership Act. But this is not a new problem. We've been talking about fixing Federal disaster policy for a very long time.
Back in 1973, a special report was transmitted to Congress by President Nixon that became known as the Lincoln-Carlucci Report, and was in response to a study organized within the Executive Office at that time. It addressed many issues currently under consideration in H.R. 1856. I've attached copies of this report to my written statement, and I ask that it be included in the record.
Mr. BOEHLERT. Without objection.
Mr. KLEIN. One of the conclusions in the 1973 report was that the proposed requirements at that time aimed at reducing disaster damages through hazard mitigation measures, such as land use and construction standards, would be the most effective of all in the long run in reducing the cost of disaster assistance from any source. Obviously, if we had been doing those things, we might not be here today.
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Although this bill is mitigation and building codes, what we really need to do is change how we think about the entire process. Having insurance does not reduce losses. Whether the Federal Government provides money after disasters or insurance companies provide the money, money is still coming from somewhere, and it costs all of us.
It is completely senseless to keep building the same way in the same areas again and again. In fact, disaster relief and insurance are disincentives for building better and safer buildings.
I'm not suggesting that we don't have disaster relief or insurance, rather that they should be a last resort, not the first. The first issue should be that we need an attitude change. We need safer buildings, better land use planning, and incentives to make this happen.
Mitigation advocated by the Federal Government, when enforced, has been extraordinarily successful. For example, the auto industry initially fought against seat belts and air bags. Today, they develop, promote and sell them as safety features. The incremental increase in the cost of a new car is in the range of 5 to 7 percent, yet car buyers are willing to pay because they know what they can do for them.
This is a situation where the direct involvement of the Federal Government worked, and it was needed to force the issue. Obviously, the Federal Government has recognized for a long time that the public needs help in assessing risk where the probability of an event on an individual basis is low, but the consequences are high.
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Most people want to believe that it won't happen to them. They live in denial. Mr. Chairman and members of the committee, please forgive me for being so bold, but we have no chance of having a balanced budget in 7 years or 70 years until we deal with this entire issue very differently.
Let's begin by telling people the truth about their living conditions. The Truth in Lending Act was intended to protect consumer finances in real estate transactions. Shouldn't we protect consumers' lives by disclosing safety features, or the lack of them, in buildings? Shouldn't we also disclose deficiencies in the infrastructure that public officials are well aware of? Shouldn't we inform people about fire department and emergency medical team response times?
Of course we should. The public has a need and a right to know. It's the decent and right thing to do, and there are many other facts about conditions where we live that also need to be disclosed to the public. If people are given the opportunity to make informed decisions about their safety and welfare in buying or renting property, the potential exists for dramatic reductions in deaths, injuries, property damage and direct and indirect costs to individuals and government. A well informed public will demand that we change the process.
Mr. Chairman, the cornerstone of mitigation is awareness and education. There are many ways to achieve responsible disclosure, and I would welcome the opportunity to work with the committee on various methods that are feasible.
This bill represents a platinum opportunity to reduce deaths, personal injuries and property damage that result from all perils, not just natural disasters. Please use this opportunity to make safer buildings for all of us, because the building industry fights against safer buildings. Congress is in the middle of a monumental debate on how to balance the budget.
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Accordingly, I'm going to ask that we do a reality check. At least most building owners have some type of insurance. With rare exceptions, practically all local, State and Federal facilities are uninsured. Public officials like to say that they are self-insured.
This is very misleading. Self-insured suggests that there is a source of funds set aside to cover losses. In these times of deficits at all levels of government, any losses experienced in government facilities requires money to repair and restore that obviously would have to be taken away from other programs or increases deficits.
The State of California has received over 70 percent of all public assistance money after disasters for public facilities since the enactment of the Stafford Act in 1988. Let's get real. The largest exposed economic risk to the taxpayers of the United States from natural disasters are Government facilities, and taxpayers don't realize it.
No budget will ever be balanced until governments at all levels lead by example by practicing mitigation in their own facilities. Mr. Chairman, mitigation is the only solution, and it won't happen without disclosures to educate and incentives to motivate. As the principal underwriter of the mortgage and banking industries, the Federal Government is compelled to play a strong role. I urge you, this committee and the Congress to exercise the political will necessary to responsibly legislate how we must get the public out of denial, inform and motivate them, and only then will be build and rebuild to higher standards.
It doesn't cost more, it requires shifting priorities and thinking long-term. Reality should take precedence over public relations.
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Thank you for permitting me to testify today, and I would be pleased to answer any questions you might have.
Mr. BOEHLERT. I want to thank you, and I want to thank all the panel members for their testimony, which is very helpful to this committee.
Mr. Harper, before he left, Mr. Schwartz seemed—well, he didn't seem to, I think he outright opposed the notion that States should be encouraged to adopt statewide building codes in order to reduce the differences that may exist between codes in various localities, because he said it would preempt local authority. What do you think about that?
Mr. HARPER. Well, I think that's the only way it can happen, Mr. Chairman. States need to have a building code, and we need to have some idea about what the minimum level is. I think that's within the States' rights.
Mr. BOEHLERT. Would you have said that in your former capacity as mayor of Wichita Falls?
Mr. HARPER. I certainly would, and I did.
Mr. BOEHLERT. Well, that's super. That's good. That's music to my ears.
Mr. McKinney, the State Floodplain Managers seem to think that mitigation measures in H.R. 1856 conflict with existing Federal mitigation programs. Do you agree with this assessment?
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Mr. MCKINNEY. Sir, we don't feel that they do. We feel like they enhance overall mitigation issues and the States would look forward to working with local governments to make mitigation become a reality in the future.
Mr. BOEHLERT. Okay, thank you very much.
I'll go now to Mr. Emerson.
Mr. EMERSON. Thank you, Mr. Chairman.
I first want to thank Mr. Harper and Mr. McKinney for their contributions here, and to assure Mr. McKinney that we are indeed very grateful for the very constructive input that your organization has given us, and to say to you that all of the ideas that you have presented for us are on the table for consideration. I think most of your ideas have been accepted. There are some that are still in the discussion stage. But the approach of the State preparedness agencies to the legislation at hand is constructive, and I commend you for that.
And Mr. Harper, I appreciate your contribution as well.
I believe, correct me if I'm wrong, Mr. Klein, you indicated that builders don't like building codes. But—
Mr. KLEIN. Can I respond to that?
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Mr. EMERSON. Please.
Mr. KLEIN. I wouldn't say that they don't like building codes. I would say that builders don't want to incorporate anything into a building that costs them more money.
Mr. EMERSON. Well, that's understandable. But then, all builders also have architects.
Mr. KLEIN. Well, and I throw some of this on the architects also.
Mr. EMERSON. Architects want to continue in their business, so they want to devise sound structures. And I think they're very constructive in their approach here. I understand builders wouldn't like to add any additional expense.
But I think they, too, would want to have some, that they would have some interest in the soundness of what they were doing. And I just think the idea that everybody's out to shave corners and doesn't care for safety and health and well-being of the public that they're endeavoring to serve doesn't really hold a lot of water.
Mr. KLEIN. Well, I would have to dispute with that, Congressman Emerson. Because, for example, in the State of California, the building industry right now has waged a war against sprinklers being mandated in certain fire ordinances in various places throughout the state.
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And they have waged a battle which is full of mis-truths and false and misleading advertising about myths about fire sprinklers. Here is a proven mitigation technology that adds 1 to 2 percent of the cost of an entire structure, which would be about the same as upgrading the carpeting in a building, and the building industry fights against it, because they don't want to add that cost.
Generally, the general contractors have to subcontract it out, because they can't install the sprinklers themselves. So they just don't want to add any additional costs. They like to say that smoke detectors are all you really need.
That's also a myth, because smoke detectors don't prevent fires. Eighty percent of people sleep through smoke detectors alarms when they go off. The only equivalent level of safety to having a fire department right next to your house is a sprinkler system.
Mr. EMERSON. Well, Mr. Klein, are you or are you not an architect?
Mr. KLEIN. No, sir, I'm not.
Mr. EMERSON. Well, you're expressing a point of view that has some legitimacy. But I'm not going to sit here and debate the pros and cons of each of your premises here. I do believe the American Institute of Architects and the State Emergency Preparedness people come to us with a body of proven concerns and considerations that is more than opinion. And so that's why I'm giving, as I am to them, the deference that I am.
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And I would say to you, you said correctly that this is not a new problem. No one said it was. But it's getting to be more of an expensive problem. And with every natural disaster that occurs, we're finding that out. And there is a growing public demand that we do something to inject individual responsibility once again into the disaster syndrome. That probably most fundamentally is what we're trying to do with this legislation.
Mr. KLEIN. And I applaud the committee for doing that. What I'm suggesting is that the public needs to be educated and motivated and they have to have incentives to take that personal responsibility.
Mr. EMERSON. No question about that. And I would heartily agree that the more education we can do about mitigation, the better. But we are probably not going to be disposed to legislate, to mandate the end-all in mitigation.
Mr. KLEIN. I'm not suggesting that we do that. What I am suggesting is that if we disclose to the public the conditions under which they live, they may choose to make wiser decisions about the way in which they spend their money in building.
I think this committee, although it may be out of the jurisdiction of this committee, but I believe that because the Federal Government is the principal underwriter of the mortgage and banking industries, and because we do have truth in lending, I believe in the concept of creating a method of disclosure where the public understands at the time they buy a property, more than just how many bedrooms and bathrooms are in there, and they can understand a lot more things that have to do with those conditions. Then, there should be value added or value subtracted as a result.
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Mr. EMERSON. Thank you.
Mr. BOEHLERT. Thank you, Mr. Emerson.
Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman.
Ms. Quinn, you deal primarily, I guess, with flood mitigation?
Ms. QUINN. The Association is Floodplain Managers. In my profession, I'm the State Coordinator of the Floodplain Management Program for the State of Maryland. And I'm also the Hazard Mitigation Officer.
Mr. EWING. I would think over the years that we have tried to make some effort in keeping people from building and developing in flood plains, and if there is a problem, not rebuilding in those areas. But wouldn't you agree that mitigation surrounding earthquake and hurricane is very different from flood? We never know where an earthquake—well, we have ideas—or a hurricane is going to hit. It's not like being in a river bottom that you know is going to flood every spring.
Ms. QUINN. That's true, and I'd like to take two parts here. One is, we now know after 20 some years of floodplain management that, perhaps it was a shortcoming, but we don't keep a record of how many decisions there are to build out of the floodplain. Quite frankly, there are a lot of areas, a lot of builders who just want to avoid all those regulations. So they build on high ground.
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You're right, it's much clearer to see mitigation in flood plains. Because we have well founded engineering techniques. With some reasonable degree of accuracy, we can say, it's going to flood down there, and it should stay dry up here. However, we do have some awareness that wind fields of certain wind speeds will extend inland. There are 100 mile an hour zones and 90 mile an hour zones.
So while we can't draw a line on the ground and say, this house will be hit by a hurricane and this one won't, we can define zones of vulnerability. One of the concerns that we have about building codes is that recently, one of the building code groups elected not to strengthen its code, even though there was, and this was only 140 some professionals who chose not to strengthen a code in the face of an insurance industry survey that found that most people who live in these very vulnerable areas along the Atlantic and Gulf Coast wouldn't mind paying that 3 to 5 percent to have a house that would withstand higher winds.
However, in terms of other hazards and retrofit opportunities, it's not as easy to see as moving houses. I did mention, I believe you were out of the room, what comes to my mind is providing assistance so homeowners can install those hurricane straps, that maybe weren't required 50 years ago. In earthquake areas, they can strap their hot water heater so it doesn't move off of its foundation and create a fire hazard.
Those are not high tech examples. But we can, and I believe FEMA can, provide, or FEMA, I know is looking at sort of a comprehensive list of the kinds of things that have been funded and their effectiveness. So we can certainly give you more examples.
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Mr. EWING. Well, in the same regard, Mr. Klein, and I don't want to just belabor this, but relocation is not the only answer in mitigation. And you mentioned allowing people to build back. And there are places that we should prevent people from building back in. And maybe we haven't done as good a job. And I really believe, though, that should not be handled from here inside the Beltway, but from the local level.
But mitigation, the answer to mitigation isn't relocating people from the vast areas that are highly populated that are subject to these problems. We can't move all of San Francisco into the mountains.
Mr. KLEIN. I absolutely agree with you on that, Congressman. And where it is that I'm really coming from about this is that for example, in talking about the flood plain, we need to redefine how we inform people that they're living in a flood plain. This idea of saying, you live in a 100 year flood plain, a 500 year flood plain, nobody knows what that means. We've had a couple of 100 year floods in the same areas in two 10-year periods in northern California.
Obviously, we've got to do something to rename this, where people understand, that you've got a certain percentage of risk in front of you that there will be a major flood within a certain period of years, based upon historical data from the past. And, I'm suggesting that we can do that in the context of federally-related mortgages, to be specific, that we can advise people what their risks are based on historical data.
Mr. EWING. Mr. Chairman, with your indulgence, I live in a community that floods. Not disastrous floods, mostly basement flooding, a flat community. And a gentleman who lived in my neighborhood a few years ago, I think it was 1992, said, we have a 500 year flood. And he responded, if that's a 500 year flood, I'm 1,500 years old.
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[Laughter.]
Mr. EWING. It was the third time in his lifetime it had happened.
Mr. BOEHLERT. Thank you very much.
Mr. Horn?
Mr. HORN. Thank you very much, Mr. Chairman.
I was interested in all of your testimony, which I had the opportunity to review. And Mr. Klein, I want to pick up on one point you made. I found your analogy very interesting. You said, let me suggest that maybe we should reconsider whether FEMA should be in the business of mitigation.
And do you feel there's an inherent and hopeless conflict of interest within FEMA? You use the analogy of the State Department and the Department of Defense which you suggest should never be merged under the same leadership. Based on recent examples, I would tell you that the Secretary of State under Reagan and possibly this Administration believes more in using the military than the Secretary of Defense under both those Administrations.
So I wonder if it's always true. What would you basically do as a supervisorial role? What agency would you have? Or would you leave it to the States, or how would you handle this in terms of mitigation, if you don't think FEMA's the place?
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Mr. KLEIN. It's a great question. I've given this a lot of thought and spoken with a number of people that I know within FEMA and in other various areas throughout the country and the world about this. And I think we really need to study the problem thoroughly.
But let me give you an example. The Federal Reserve right now is set up in a way that they can deal with the banking industry and be very independent. They can render opinions about things and in theory, are not politically motivated in what they do.
If we have an independent group that goes into an area and evaluates what really are the risks in that area, recommendations can be made of what the building codes in that area need to be as requirements of issuing federally-related mortgages in that area. And the areas can choose not to adopt those recommendations, and the Federal Government can choose not to underwrite mortgages in that area, if they don't take those recommendations and implement them.
But we need a body that's going to be very, very independent, to do this. And this type of a body would really have no one to answer to within that local area so they wouldn't be politically swayed. Maybe they should be part of the banking part of Congress. Maybe they should be somewhere else, other than within FEMA.
I think FEMA does an amazing job. I was in the Virgin Islands after Hurricane Marilyn, and was in the Virgin Islands after Hurricane Hugo, and they have done an incredibly better job in responding.
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But on the flip side, on the mitigation side, what they have become in my opinion is a conduit of funds, and I don't see any follow-up on the part of FEMA to see where does the money get spent in mitigation. There's just no accountability on the part of the recipient or the provider of the funds.
Mr. HORN. Do you feel they aren't doing enough or do you feel that it's just basically incompatible functions for the department or for the agency in this case?
Mr. KLEIN. It could go full circle, and it might end up back at FEMA under what I'm thinking.
Mr. HORN. See, if you look at the Department of the Interior, you have the Bureau of Reclamation, and the Bureau of Indian Affairs. And sometimes they conflict over the use of the land. But you've got a resolution above them in the Secretary of the Interior. You've got the Bureau of Public Land Management and you've got the wilderness groups and the parks groups where they don't want use of the land. So those conflicts exist in some agencies. Are they impossible to resolve? Besides the potential conflict, is it lack of leadership in the mitigation area or what?
Mr. KLEIN. I think it's lack of the technical expertise being provided to the States. When I heard Delegate Frazer talking about FEMA being involved in building codes in the Virgin Islands now, I'm not exactly sure to what extent. They may be there in an advisory role. What I'm suggesting is more in a regulatory role if federally-related mortgages are issued in a certain area.
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I'm not suggesting that the people in mitigation at FEMA aren't doing a good job. I think they do a tremendous job. But I think that in the context of the way the agency functions, which is an agency that's responding after disasters, I think it's difficult to have the same people that are constantly ready to respond and show people that they are there for their needs, to show them how to reduce the need for them to respond, and maybe we need to take that group and consider whether that group should be under a leadership in a different place.
Mr. HORN. Mr. Chairman, as I mentioned to you, another gentleman was supposed to be on this panel, Dr. Robert Maxon, the President of California State University at Long Beach, who is Chairman of the Centers for the Protection Against Natural Disasters. Unfortunately, he couldn't make it. Dr. Richard Williams, the Dean of Engineering at the University who is an expert on what such centers might do, has prepared some testimony. He was here in Washington. I don't see him in the audience now. And I'd like to include his testimony in the record, if I might.
Mr. BOEHLERT. That would be a welcome addition to the record.
[Mr. Williams' prepared statement follows:]
[Insert here.]
Mr. BOEHLERT. Thank you very much, Mr. Horn.
And I want to thank all of our witnesses very much. Now we go to further analysis of the bill and comments received today. And Mr. Emerson has some suggested changes. We've heard that the Administration officials
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will be meeting with Mr. Emerson. Hopefully that will be a productive session. We might have additional hearings on this. It's a very important subject. It's not something we can just snap and do it right away. But we're moving in the right direction, and I want to thank all of today's witnesses.
This hearing is adjourned.
[Whereupon, at 4:45 p.m., the subcommittee was adjourned, to reconvene subject to the call of the Chair.]
[Insert here.]